Quick answer
Mark-to-market accounting taxes your unrealised crypto gains annually — a regime used by professional traders in the US.
Accounting
Germany
United States
Mark-to-Market Accounting
An accounting method that values assets at current market price, potentially treating unrealised gains and losses as taxable.
GermanyUnited StatesUnderstanding Mark-to-Market Accounting on crypto
Mark-to-market (MTM) accounting involves recording the value of assets at their current market price rather than historical cost. For crypto tax purposes, the MTM method (under IRC Section 475) is available to qualifying traders in the US, treating all unrealised gains and losses at year-end as if the assets were sold on 31 December. This eliminates the distinction between short-term and long-term gains (all are ordinary income/loss) and allows ordinary loss deductions (not limited to $3,000 per year as capital losses are). It is generally elected by professional crypto traders with substantial activity who want to avoid the capital loss limitation on losses.
Mark-to-market (MTM) accounting involves recording the value of assets at their current market price rather than historical cost. For crypto tax purposes, the MTM method (under IRC Section 475) is available to qualifying traders in the US, treating all unrealised gains and losses at year-end as if the assets were sold on 31 December. This eliminates the distinction between short-term and long-term gains (all are ordinary income/loss) and allows ordinary loss deductions (not limited to $3,000 per year as capital losses are). It is generally elected by professional crypto traders with substantial activity who want to avoid the capital loss limitation on losses.
What this means for your crypto activity
Tax on unrealised positions
MTM treats year-end unrealised positions as taxable — you pay tax on gains you haven't sold yet.
Ordinary income treatment
All MTM gains and losses are ordinary income/loss — the short-term/long-term distinction disappears.
Unlimited ordinary losses
Ordinary losses under MTM are not limited to $3,000/year — potentially significant for traders with large losses.
Trader status required
Electing MTM requires filing Form 3115 and meeting 'trader' status criteria — it is not available to investors.
Germany corporate rules
Germany's Fremdwährungsgewinne rules can create some mark-to-market-like outcomes for corporate crypto holders.
- MTM treats year-end unrealised positions as taxable — you pay tax on gains you haven't sold yet.
- All MTM gains and losses are ordinary income/loss — the short-term/long-term distinction disappears.
- Ordinary losses under MTM are not limited to $3,000/year — potentially significant for traders with large losses.
- Electing MTM requires filing Form 3115 and meeting 'trader' status criteria — it is not available to investors.
- Germany's Fremdwährungsgewinne rules can create some mark-to-market-like outcomes for corporate crypto holders.
Seeing it in action
Example scenario
Professional crypto trader Mike has $500,000 in unrealised crypto losses at year-end. Under normal capital gain rules, only $3,000 can offset ordinary income — the rest carries forward. Under a valid MTM election, the full $500,000 is an ordinary loss, offsetting $500,000 of ordinary income and potentially generating a large refund or carryback. The MTM election fundamentally changes his tax position.
How this works across jurisdictions
- Germany
Standard individual investors use realization-based accounting; corporate holders may face different valuation requirements under HGB/IFRS.
- United States
IRC Section 475 MTM election available to qualifying traders (not investors); treats all positions as sold at year-end; ordinary income/loss treatment; election deadline is April 15 of the relevant year.
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