Where to Report Section 475(f) Income on Your Tax Return

If you’ve made the Section 475(f) mark-to-market election, your trading results go on Form 4797 (Sales of Business Property), Part II, line 10, as ordinary gains and losses. The net figure from Form 4797 flows to Schedule 1 (Form 1040), Part I, line 4 (“Other gains or (losses)”), and from there onto your Form 1040. Business expenses for the trading activity are reported separately on Schedule C. Nothing from your electing trading activity belongs on Schedule D or Form 8949. That is where to report Section 475(f) income on your tax return, and the sections below walk through each form line by line, plus the additional forms the election drags along with it.

Form 4797, Part II: Where the Trading Results Go

Form 4797 is the primary form for mark-to-market results. Both closed trades from during the year and open positions deemed sold at year-end fair market value go in Part II (Ordinary Gains and Losses).¹

The IRS instructions direct traders to line 10 for all mark-to-market transactions. Instead of listing every trade on the form, enter “Trader—see attached” in column (a) and put only the totals in columns (d), (f), and (g). Then attach a separate statement to your return, formatted like line 10, showing the details of each transaction. Open positions marked to market at year-end should be separately identified on that attachment.¹

To calculate each entry, compare the fair market value of the position on December 31 to its adjusted basis. For positions acquired during the current year, basis is your purchase price. For positions carried over from a prior year, basis is the prior year-end fair market value, because you already recognized gain or loss on it last year. If fair market value exceeds basis, you have an ordinary gain; if it falls short, an ordinary loss.

If your broker reported gross proceeds from mark-to-market transactions on Form 1099-B, those proceeds also go on line 1a of Form 4797.¹

Schedule 1 and Form 1040: Where the Net Lands

The net ordinary gain or loss from Form 4797 does not go directly onto Form 1040. It flows to Schedule 1 (Form 1040), Part I, line 4, labeled “Other gains or (losses),” with a checkbox for Form 4797.² The Schedule 1 total then carries over to Form 1040, where it combines with your other income.

Because 475(f) results are ordinary rather than capital, they do not appear on Schedule D or Form 8949. Keep your broker’s 1099-B statements aligned with the trading detail you attach to Form 4797. The IRS uses automated document matching to compare 1099-B forms against what you report, and discrepancies can trigger correspondence or delays. Electronically filed returns are generally processed within 21 days; paper returns take significantly longer.³

Schedule C: Where Trading Business Expenses Go

The costs of running your trading business are reported separately from your trading gains and losses. Form 4797 handles the mark-to-market results; Schedule C (Profit or Loss From Business) captures the expenses.⁴ Common deductible expenses include:

Platform and data fees: trading platforms, real-time market data, charting software.
Margin interest. Because you are operating a trading business, margin interest is a Schedule C business expense rather than an investment interest deduction limited to investment income.
Education and research: subscriptions to financial research services and market analysis tools directly related to trading.
Equipment: computers, monitors, and other hardware used for trading.

A dedicated space in your home used exclusively and regularly for trading can support a home office deduction, covering a proportional share of rent or mortgage interest, utilities, and insurance. Calculate the percentage of your home’s total area used for trading and apply that percentage to your indirect household expenses. The home office deduction is reported on line 30 of Schedule C.⁵

These deductions reduce your overall taxable income by offsetting the ordinary income from your trades. Keep receipts and records for every expense; the IRS can disallow deductions you cannot substantiate.

Form 3115 and the Section 481(a) Adjustment

If the year you’re filing is the first year the election takes effect, and your prior method of accounting for securities was anything other than mark-to-market, Form 3115 (Application for Change in Accounting Method) goes with the return. Revenue Procedure 2025-23, Section 24.01 provides automatic consent for this change, so advance IRS approval is not required.⁶

Any open positions held at the end of the prior year are treated as sold at fair market value on the first day of the election year. That produces a one-time Section 481(a) adjustment (the difference between your old method and the new one), which is reported on Form 4797 alongside your regular trading results for the year.⁷

Form 8960 for Net Investment Income Tax, and Why Schedule SE Doesn’t Apply

Section 475(f) income is ordinary, but it is not subject to the 15.3% self-employment tax. Section 475(f) specifically provides that the ordinary characterization does not apply for purposes of Section 1402, which defines self-employment income. Schedule SE does not get filed for the trading income.⁷ If you use tax preparation software, verify that it does not automatically route Form 4797 or Schedule C figures onto Schedule SE.

The 3.8% Net Investment Income Tax is a different story. It applies to income from a trade or business of trading in financial instruments or commodities, which is exactly what a 475(f) election covers.⁸ The tax is 3.8% of the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds these thresholds:

Single or head of household: $200,000
Married filing jointly: $250,000
Married filing separately: $125,000

The thresholds are not adjusted for inflation. Calculate the NIIT on Form 8960 and report it on Form 1040.⁹

The Excess Business Loss Cap Still Applies

Ordinary losses from the 475(f) election are not subject to the $3,000 capital loss cap, but they hit a different limit. Under Section 461(l), your net business losses for the year cannot exceed a threshold that is adjusted annually for inflation. For tax year 2026, the limit is $256,000 for single filers and $512,000 for joint filers.¹⁰

Losses above this threshold are not permanently lost; they convert into a net operating loss carryforward. But the cap means a trader with $800,000 in losses filing as single cannot deduct the full amount against that year’s other income. Only $256,000 offsets other income in the loss year; the remaining $544,000 carries forward. Factor this cap into your tax planning if you also have significant non-trading income.

1
Internal Revenue Service. Instructions for Form 4797 (2025)
2
Internal Revenue Service. 2025 Schedule 1 (Form 1040)
3
Internal Revenue Service. Processing Status for Tax Forms
4
Internal Revenue Service. 2025 Instructions for Schedule C (Form 1040)
5
Internal Revenue Service. Publication 587 (2024), Business Use of Your Home
6
Internal Revenue Service. Revenue Procedure 2025-23
7
Office of the Law Revision Counsel. 26 USC 475 – Mark to Market Accounting Method for Dealers in Securities
8
Office of the Law Revision Counsel. 26 U.S. Code 1411 – Imposition of Tax
9
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
10
Internal Revenue Service. Revenue Procedure 2025-32