How to Report Gains and Losses Marked to Market

If you made the mark-to-market election, you should report all gains and losses from trading as ordinary gains and losses in Part II of Form 4797, instead of as capital gains and losses on Schedule D. In that case, securities held at the end of the year in your business as a trader are marked to market by treating them as if they were sold (and re-acquired) for fair market value on the last business day of the year.

• Do not mark to market any securities you held for investment.  Report sales from investments on Schedule D, not Form 4797.
• Those who have elected the Mark to Market accounting method with the IRS report their gains and losses on the IRS FORM 4797 - Sales of Business Property - line 10.

The instructions for Form 4797 Line 10 states:
Report on line 10 all gains and losses from sales and dispositions of securities or commodities held in connection with your trading business, including gains and losses from marking to market securities and commodities held at the end of the tax year.

• Attach to your tax return a statement, using the same format as line 10, showing the details of each transaction. - TradeLog MTM™ Form 4797 Attachment
• On line 10 of Form 4797 enter “Trader - see attached” in column (a) and enter the totals from the form 4797 attachment in columns (d), (f), and (g).
• Separately show and identify securities or commodities held and marked to market at the end of the year.
  - TradeLog MTM™ Securities Marked to Market
• If this is the first year using mark to market accounting, attach the TradeLog MTM™ Section 481 Adjustment to your Form 3115 - see Form 3115 instructions.

Since all trades are priced to year end market prices and are therefore held one year or less, all of the MTM trades are by definition short term and are considered ordinary and are to be listed in Part II of this form.

There are seven columns in Part II as shown below:

Column (e) Depreciation is not used for the purposes of investments, so we will concern ourselves only with columns a-d, and f-g.

Once again, all of the same trade matching rules apply as described in our IRS schedule d tax topic under the heading: Matching and entering your trades on schedule d so having an automated method of doing so can save you many hours of grief.