How does gaining trader status change the wash sale restriction?

Trader tax status (sometimes called TTS) is a tax classification the IRS grants to people whose trading is frequent, substantial, and continuous enough to look like a business rather than a series of personal investments. It is not a box you check on a form; it is a status you claim and support with facts about your trading activity, and the IRS or a court can later disagree with you.

The wash sale rule itself says that if you sell a security at a loss and buy the same or a "substantially identical" one within a window around that sale, you cannot deduct the loss immediately — it gets added to the cost basis of the replacement shares instead, deferring it rather than erasing it. This applies to ordinary investors in taxable accounts, and separately can permanently disallow the loss if the repurchase happens inside an IRA.

Gaining trader status does not exempt you from the wash sale rule by itself. What it can change is the election that often comes bundled with it: a trader who also makes a mark-to-market accounting election under the relevant IRS section reports gains and losses as ordinary income and, crucially, marks all open positions to market value at year-end as if sold. Under that accounting method, the wash sale rule generally no longer applies to those trading positions, because the mark-to-market regime replaces the realization-based logic the wash sale rule depends on.

The nuance that trips people up is conflating "trader status" with "mark-to-market election." They are two separate steps with separate paperwork and deadlines, and simply trading a lot, or even qualifying as a trader in the IRS's eyes, does not automatically turn off wash sale treatment — the mark-to-market election is the piece that does that, and it has its own consequences, including the loss of favorable long-term capital gains rates.