All articles 6 min read

Special Rules for Traders in Securities or Commodities — How To Report: Investment Taxes (2025 IRS Guide)

This guide covers “Special Rules for Traders in Securities or Commodities — How To Report” within investment taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 550 (2025), Investment Income and Expenses, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

Special rules apply if you are a trader in securities or commodities in the business of buying and selling securities or commodities for your own account. To be engaged in business as a trader in securities or commodities, you must meet all the following conditions.

  • You must seek to profit from daily market movements in the prices of securities or commodities and not from dividends, interest, or capital appreciation.

  • Your activity must be substantial.

  • You must carry on the activity with continuity and regularity.

The following facts and circumstances should be considered in determining if your activity is a securities or commodities trading business.

  • Typical holding periods for securities or commodities bought and sold.

  • The frequency and dollar amount of your trades during the year.

  • The extent to which you pursue the activity to produce income for a livelihood.

  • The amount of time you devote to the activity.

If your trading activities do not meet the above definition of a business, you are considered an investor, and not a trader. It does not matter whether you call yourself a trader or a “day trader.”

Special Rules for Traders in Securities or Commodities — How To Report

Transactions from trading activities result in capital gains and losses (unless a section 475(f) election has been made) and must be reported on Form 8949 and Schedule D (Form 1040), as appropriate. Losses from these transactions are subject to the limit on capital losses explained earlier in this chapter.

Mark-to-market election made.

If you made the section 475(f) 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 Form 8949 and Schedule D (Form 1040). In that case, securities or commodities (depending upon which election was made) 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 for fair market value on the last business day of the year and gain or loss is recognized. But do not mark-to-market any securities or commodities you held for investment. Report sales from those securities or commodities on Form 8949 and Schedule D (Form 1040), as appropriate, not Form 4797. See the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040).

Note:

You may be a trader in some securities or commodities and have some securities or commodities that are not held in connection with your activities as a trader, such as those held for investment. The mark-to-market special rules discussed here do not apply to the securities or commodities held for investment. You must keep detailed records to distinguish those securities or commodities. The securities or commodities held for investment must be identified as such in your records on the day you acquired them (for example, by holding them in a separate brokerage account) specifically identified under section 475.

Expenses.

Interest expense and other investment expenses that an investor would deduct on Schedule A (Form 1040) are deducted by a trader on Schedule C (Form 1040), Profit or Loss From Business, if the expenses are from the trading business. Commissions and other costs of acquiring or disposing of securities or commodities (depending upon which election was made) are not deductible but must be used to figure gain or loss. The limit on investment interest expense, which applies to investors, does not apply to interest paid or incurred in a trading business.

Self-employment tax.

Gains and losses from selling securities or commodities as a trader are not subject to self-employment tax. This is true whether the election is made or not. For an exception that applies to section 1256 contracts, see Self-Employment Income, earlier.

How To Make the Mark-to-Market Election

To make the mark-to-market election for 2026, you must have filed an election statement no later than the due date for your 2025 return (without regard to extensions). The statement must be attached to that return or with a properly filed request for extension of time to file that 2025 return (Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return). The statement must have included the following information.

  • That you are making an election under section 475(f)(1) or (f)(2) of the Internal Revenue Code.

  • The first tax year for which the election is effective.

  • The trade or business for which you are making the election.

If you’re a new taxpayer that wasn’t required to file a tax return for the prior year, you may make the election by placing the above statement in your books and records no later than 2 months and 15 days after the first day of the year for which you intend the election to become effective. You must attach a copy of the statement to your tax return for that year.

If your method of accounting for 2025 is inconsistent with the mark-to-market election, you must change your method of accounting for securities under Revenue Procedure 2025-23 (or its successor), available at IRS.gov/irb/2025-24_IRB#REV-PROC-2025-23. Revenue Procedure 2025-23 requires you to file Form 3115, Application for Change in Accounting Method. Follow its instructions. Enter “64” on line 1a of the Form 3115.

If you made a mark-to-market election within 5 tax years of revoking a prior election, you can resume the mark-to-market election of the new election. To restart the mark-to-market election, you must file an election statement no later than the due date for your 2025 return (without regard to extensions) under Revenue Procedure 99-17, sections 5.03 and 5.04, and follow the non-automatic change procedures to request a change in method of accounting as described in Rev. Proc. 2015-13.

Once you make the election, it will apply to 2025 and all later tax years, unless you get permission from the IRS to revoke it. The effect of making the election is described under Mark-to-market election made, earlier.

If you want to revoke a prior mark-to-market election within the 5 tax years ending with the year of change for the election, you must follow the non-automatic change procedures in Revenue Procedure 2015-13 and Revenue Procedure 2025-23, section 24.02(9).

For more information on this election, see Revenue Procedure 99-17, on page 52 of Internal Revenue Bulletin 1999-7 at IRS.gov/pub/irs-irbs/irb99-07.pdf.

For information about method of accounting using the non-automatic change, see Revenue Procedure 2015-13 in Internal Revenue Bulletin 2015-5, available at IRS.gov/irb/2015-05_IRB#RP-2015-13 and Revenue Procedure 2024-23 in Internal Revenue Bulletin 2024-23, available at IRS.gov/irb/2025-24_IRB#REV-PROC-2025-23.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

Back to all articles