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Strategies & Market Trends : IRS, Tax related strategies--Traders -- Ignore unavailable to you. Want to Upgrade?

To: Colin Cody who wrote (745)	3/3/1999 3:56:00 AM
From: Nelson Chang	Respond to of 1383

An indicator that I follow has just reported a "crash signal." The website is wwfn.com It called the market crash of July 98, but it has also been wrong 60% of the time. It's something to keep in mind, in that a signal like this is only triggered when the market is significantly unhealthy. ...just wanted to let people know. :) And I'm only posting this on the 2 sites I follow on SI. Now back to taxes...

To: Colin Cody who wrote (745)	3/5/1999 8:30:00 PM
From: Tom_	Read Replies (2) \| Respond to of 1383

Effect of the Marked to Market Election. Colin, many thanks for your posts on both the tax threads; they are much appreciated. I'd like to make sure I understand the marked to market election for a trader, as it affects the wash rule. I wonder if you can help. My understanding is that if MTM status is elected, the wash rule no longer applies to the trader. So here's my hypothetical. An MTM trader is sitting on a $10,000 gain. He has withdrawn it from his trading account and put it in the bank. He's a California resident with a combined federal-state tax rate of 40%. Therefore $4,000 of the money in the bank is earmarked for tax payment. He buys 100 shares of XYZ at 100. It goes down. He sells at 90. He has a paper loss of $1000. But, since the $1000 loss offsets $1000 of his gains, he actually owes $400 less tax and so has a real life net gain of $400 in his bank account. He immediately buys 100 XYZ at 90. The stock goes up. He sells at 100. He has a $1000 gain, from his new 90 basis. He therefore owes $400 tax on it. He has netted another $600. In sum, he has netted $1000 on a stock that hasn't moved. Now, the same hypo facts for a trader w/o MTM, or for an investor. The paper $1,000 loss is disallowed tax-loss-wise because of the wash rule. So the $1,000 loss does not offset $1,000 of his prior gains. Therefore the $1,000 loss is an actual (gross and net) loss. His new basis is still 100 because of the wash rule. Therefore the $1,000 gain from 90 to 100 is not taxable because he hasn't gained over his 100 basis. So, he has lost $1,000 and gained $1,000. He is net absolutely even. Thus, as a conclusion: the MTM election can be of value to a successful trader. It can be to his advantage to sell and re-buy his under-the-water stocks at perceived lows. Does this make any sense at all? Thanks in advance. Best wishes, Tom