Capital Loss Carryforward & MTM

How much in Net Capital Loss carryforward ("NCLcf") should you have before electing Mark to Market ("MTM")?

That is a difficult question to answer quantitatively.

Once the MTM election has been made, the NCLcf is frozen for offsetting any MTM gains since the NCLcf is by definition a capital loss and MTM gains are ordinary income.

The NCLcf can offset capital gains if you have setup two accounts, one for trading - the MTM account - and another for other investments. The details of this are described in the topic "Long Term Gains and the MTM Election".

But is there an amount of NCLcf that is simply too high to consider the MTM election?

Quite frankly, I think it depends on several factors taken in conjunction, such as:

• The dollar amount of the carryforward

• What you have left or transferred into the investment (non-MTM) account

• Your age

If you have a $10,000 NCLcf, have some low basis security gifted to you from a parent and are 30 years old - and you meet the "Trader in Securities" threshold, electing MTM is a "no-brainer" ... go for it!!

But if you have a $250,000 NCLcf, a few securities you have accumulated over the years and are 55 years old, the MTM election may not be the best tax move for you. If you believe you can trade at a profit, you can trade as a day-trader or high volume/frequency trader without a MTM election and then offset any substantial gains with your NCLcf.

Anything in between those two extremes comes down to your personal tolerance for paying tax on any gains at ordinary tax rates and only receiving the benefit of a $3,000 net capital loss per year.

Bottom-line, there are some obvious scenarios for either position, otherwise it is personal choice. But if you are closer to the second example above, you would have to live to be 139 years old to exhaust your NCLcf ...