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Day Trader


MargaretMort
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Help! I have an elderly client who was day-trading for a couple of years. He was also losing money. He has a loss carry-over of about $15000. His health is very poor and I feel certain he will never live long enough to use up the carry-over at $3000 a year. She will not have to file Tax Returns as a widow. (He was using savings that were for her to live on after he dies.)

I believe there is a way to take all the losses at once but I am not certain how to do it. Any help would be much appreciated. Thanks

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Does he qualify to consider this a schedule C business and thus a schedule C loss?

Even if he could consider this a business and use Schedule C, the loss would still be a capital loss, subject to the rules governing the deduction of capital losses. Using the Mark to Market system of reporting trades is the only way trading gains/losses can be treated as ordinary income/loss. It is too late now to elect that method of accounting for trading gains/losses for the 2007 tax return.

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Even if he could consider this a business and use Schedule C, the loss would still be a capital loss, subject to the rules governing the deduction of capital losses. Using the Mark to Market system of reporting trades is the only way trading gains/losses can be treated as ordinary income/loss. It is too late now to elect that method of accounting for trading gains/losses for the 2007 tax return.

true.

Although beyond the scope of this forum and not relevant anyway, unless he is going to continue day trading:

A trader who makes the Mark to Market election isn't subject to the wash sale rule.

* all your trading gains and losses will be treated as ordinary income, not capital gain.

* any stock or other trading asset you hold at the end of the year is "marked to market." This means you report gain or loss as if you sold it at the close of business on the last trading day of the year for its fair market value.

* Once you make this election you're stuck with it. You can revoke it only with the consent of the IRS.

* IRS chose an unusual deadline for this election. Most elections are due at the end of the year, when you file your return. This election has to be made by the due date — without extensions — for the previous year's tax return. The last day to make the mark-to-market election for the year 2007 is April 17, 2007 (the unextended due date for 2006 tax returns).

Joel

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>>realizing capital gains to offset the capital losses<<

That is indeed the only way, but it doesn't necessarily mean investments. Personal assets like a car, collectibles, or a residence can be sold or traded to produce capital gain that would otherwise be taxable. That won't work for everyone, but investments don't work for everyone either. My earlier post on this was deleted, but we need to keep it in mind because for some taxpayers it's the best answer.

In the original post, we only need to offset 15K. If bad investments mean you can't afford a home that is rapidly losing value anyway, it might make sense to sell it without excluding a small gain. There is no tax because you are picking up a loss that was otherwise unusable, and you preserve Section 121 for another property in the next couple years.

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I thank you all. In the continuing ed. I took in December the instructor said something about being able to take all the losses as once. When I started reading up on it I thought the mark to market was probably what he had been talking about. I was sure if there was a way it could be done the people on this board would know the answer.

Thanks again.

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I thank you all. In the continuing ed. I took in December the instructor said something about being able to take all the losses as once. When I started reading up on it I thought the mark to market was probably what he had been talking about. I was sure if there was a way it could be done the people on this board would know the answer.

Thanks again.

You can take them all at once if you have a year with a lot of gains that will absorb the losses. There is no other way apparently.

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