Carryback of capital losses attributable to mark-to-market rules

(a) In general Section 1212 is amended by adding at the end the following new subsection: (d) Carryback of losses of applicable taxpayers from assets marked To market (1) In general If an applicable taxpayer elects to have this subsection apply to any taxable year in which the taxpayer has a net marked-to-market loss (in this subsection referred to as the loss year), the amount of such net marked-to-market loss— (A) shall be a carryback to each of the 3 taxable years preceding the loss year, and (B) to the extent that, after the application of paragraphs (2) and (3), such loss is allowed as a carryback to any such preceding taxable year, the amount so allowed shall be treated as a long-term capital loss. (2) Amount carried to each taxable year The entire amount of the net marked-to-market loss for any loss year shall be carried to the earliest of the taxable years to which such loss may be carried back under paragraph (1). The portion of such loss which shall be carried to each of the 2 other taxable years to which such loss may be carried back shall be the excess (if any) of such loss over the portion of such loss which, after the application of paragraph (3), was allowed as a carryback for any prior taxable year. (3) Amount which may be used in any prior taxable year An amount shall be allowed as a carryback under paragraph (1) from a loss year to any prior taxable year only to the extent— (A) such amount does not exceed the net marked-to-market gain for such prior year, and (B) the allowance of such carryback does not increase or produce a net operating loss (as defined in section 172(c)) for such year. (4) Net marked-to-market loss For purposes of this subsection, the term net marked-to-market loss means, with respect to any taxable year, an amount equal to— (A) the net capital loss for the taxable year determined by taking into account only marked-to-market gains and losses, reduced (but not below zero), by (B) the aggregate amount of gains from the sale or exchange of capital assets which are not marked-to-market gains. (5) Net marked-to-market gain For purposes of this subsection— (A) In general The term net marked-to-market gain means, with respect to any taxable year, an amount equal to— (i) the capital gain net income for the taxable year determined by taking into account only marked-to-market gains and losses, reduced (but not below zero), by (ii) the aggregate amount of losses from the sale or exchange of capital assets which are not marked-to-market losses. (B) Special rule The net marked-to-market gain for any taxable year before the loss year shall be computed without regard to the net marked-to-market loss for the loss year or for any taxable year thereafter. (6) Coordination with carryforward provisions of subsection (b) (1) (A) Carryforward amount reduced by amount used as carryback For purposes of applying subsection (b)(1)(B), if any portion of the net marked-to-market loss for any taxable year is allowed as a carryback under paragraph (1) to any preceding taxable year, the amount allowed as a carryback shall be treated as a long-term capital gain for the loss year. (B) Carryover loss retains character as attributable to marked-to-market Any amount carried forward as a long-term capital loss to any taxable year under subsection (b)(1)(B) (after the application of subparagraph (A)) shall, to the extent attributable to marked-to-market losses, be treated as marked-to-market loss. (C) Coordination with reduction in net capital loss for credit For purposes of this paragraph and paragraph (4), any reduction in net capital loss under section 492(c)(3) (relating to reduction for credit against tax attributable to deferral recapture amount) shall, except as provided by the Secretary, be applied before the application of such paragraphs. (7) Other definitions and rules For purposes of this subsection— (A) Marked-to-market gains and losses (i) In general The terms marked-to-market gains and marked-to-market losses means, with respect to any applicable taxpayer for any taxable year, gains or losses which are recognized and taken into account by such taxpayer for such taxable year under section 491 by reason of taxable events described in section 491(b)(1) with respect to tradable covered assets which are capital assets. Such terms shall not include gains and losses from nontradable covered assets which are treated as tradable covered assets (and to which section 491 applies) by reason of an election under section 496(a)(3). (ii) Applicable entities In the case of marked-to-market gains or losses of an applicable entity, this subsection shall be applied at the partner or other ownership level. (B) Other terms Any term used in this subsection which is also used in part IV of subchapter E shall have the same meaning as when used in such part.. (b) Effective date The amendment made by this section shall apply to loss years beginning after December 31, 2025.