Mark-to-market election is not a disposition for PAL purposes.

• Author: Fiore, Nicholas J.
• Position: Passive activity loss

Sec. 1(h) provides a reduced capital-gain rate for qualified five-year gain. Sec. 1(h)(2)(B)(ii) limits the amount of that gain by taking into account only property for which the holding period begins after 2000. Under Section 311(e) of the Taxpayer Relief Act of 1997 (TRA '97), a noncorporate taxpayer may elect to treat a capital asset or property used in a trade or business (as defined in Sec. 1231(b)), held by the taxpayer on Jan. 1,2001, as sold on Jan. 1,2001 for its fair market value (FMV), and as reacquired for its FMV on the same date (a mark-to-market election).

According to Sec. 469(g)(1)(A), if a taxpayer disposes of his entire interest in any passive activity (or former passive activity) in a fully taxable transaction that does not involve a disposition to a related party, the excess of the loss from the activity for the tax year (including any suspended passive activity loss (PAL)) over any net income or gain for the tax year from all other passive activities would not be a PAL. As a result, if Sec...