We received the following AI opinion on MTM (mark-to-market) from a new client today:

“There are trade-offs. The mark-to-market election can let you deduct trading losses as ordinary losses, which is often more valuable than capital losses. It also simplifies tax reporting since you don’t track cost basis or hold periods. However, it means you’d have to pay ordinary income tax rates on all gains, without the benefit of lower long-term capital gains rates. Also, once you make this election, it’s generally permanent and hard to revoke without IRS approval. If you expect net losses, it could be beneficial. But if you expect consistent profits, you might prefer to keep the flexibility of capital gains treatment.”

Please realize, NONE of this is practical. All of it is somewhat accurate, but none of it is good advice. Short term tax rates are the same as ordinary rates. Capital losses are capped at $3000/year. Really, who expects losses? We never apply MTM to long-term investments. Cost basis is important in all situations. Revocation is simple after 5 years. Capital gains are not “flexible”. There is very little good interpretation of actual real-world scenarios in this AI information.