What Is the PFIC Mark-to-Market Election and When Should I Use It?
The mark-to-market (MTM) election under IRC Section 1296 lets you recognize gain or loss on a marketable PFIC each year based on the change in its fair market value from January 1 to December 31. This avoids the punitive Section 1291 excess distribution regime, which imposes top ordinary income rates plus compounding interest on deferred gains.
How the MTM election works:
- Year-end value exceeds adjusted basis: You recognize ordinary income equal to the increase
- Year-end value falls below adjusted basis: You recognize an ordinary loss, but only to the extent of prior MTM gains (net mark-to-market gain)
- Basis adjusts annually: Increases by gains recognized, decreases by losses
| Year | Year-end FMV | Basis (start) | Gain/(Loss) recognized | New basis |
| 2023 | $12,000 | $10,000 | $2,000 gain | $12,000 |
| 2024 | $11,000 | $12,000 | ($1,000) loss | $11,000 |
| 2025 | $14,000 | $11,000 | $3,000 gain | $14,000 |
Eligibility requirements:
- Marketable stock only: The PFIC must be regularly traded on a qualifying exchange (NYSE, NASDAQ, LSE, TSX, ASX, and most national exchanges recognized by the IRS)
- Non-traded funds do not qualify: Unlisted mutual funds, hedge funds, and private equity cannot use MTM
- Election made on Form 8621: Attach to a timely filed return in the first year you want the election to apply
MTM vs. QEF vs. Section 1291:
| Feature | MTM | QEF | Section 1291 |
| Tax rate | Ordinary income | Ordinary + capital gains | Top ordinary + interest |
| Fund info needed | Market price only | Annual Information Statement | None |
| Loss deductible | Limited to prior gains | No (but basis increases) | No |
| Best for | Exchange-traded PFICs | Funds providing AIS | Last resort |
When MTM is the right choice:
- Your PFIC is exchange-traded, but the fund does not provide a QEF Annual Information Statement (common with foreign-listed ETFs)
- You want simplicity: Just look up the December 31 price, no need to obtain fund-level income data
- You missed the first-year QEF window: MTM can be elected in any year without a purging election (though prior-year Section 1291 taint on pre-MTM gain may still apply at sale)
For the PFIC election strategy, see our PFIC Reporting Guide.
Last updated on April 29, 2026
