How Realize checks its numbers

How does Realize calculate prediction market taxes?

Every figure comes out of the same five steps, run on one connected account at a time.

1. Read the trades. Realize connects to Kalshi or Polymarket US and reads your trades, settlements and fees. The connection cannot place a trade or move money; Security covers how.
2. Match each sale to a purchase. A sale closes the earliest purchase still open in that market, first in, first out. Each fee is assigned to the lot it was paid on, so every lot's result is net of its own fees. Kalshi's own profit and loss statement uses the same first-in, first-out method.
3. Treat a settlement as a sale. When a market resolves, whatever you still hold is closed at the payout.
4. Mark open positions at year end, for one route. §1256(a)(1) treats a Section 1256 contract held at the close of the year as sold at its fair market value on the last business day of the year. For that route, Realize treats a position still open on December 31 as sold at the venue's own published close for that day and reopens it on January 1 at the same price. The standard capital route skips this step.
5. Price the year three ways. The same ledger is priced as standard capital gains, as Section 1256 contracts and as gambling. Realize does not pick one.

How does a figure trace back to a trade?

Take one position from the worked cases behind the Section 1256 route. You buy 1,000 YES contracts at $0.30, a cost of $300. On December 31 the venue's close is $0.18, and you still hold them. Next year the market settles YES at $1.00.

Both routes recognize the same $700 over the two years. They differ on when. §1256(a)(2) requires a "proper adjustment" for gain or loss already taken into account by the mark. Realize makes it by reopening the position at $0.18, so the $120 taken this year is not counted again next year. The table assumes event contracts are Section 1256 contracts, which is not settled.

Every closed lot and every December 31 mark is a row on the transaction statement. Each market's line sums the lots beneath it, and each account's total carries to line 1 of Form 6781. That is the document a preparer checks the form against, and it is the list the Form 6781 instructions ask for: "List separately each transaction for which you didn't receive a Form 1099-B or substitute statement."

Why is the venue the source of truth?

Realize keeps nothing it treats as more authoritative than the venue's own record. Everything it computes is rebuilt from that record on every sync, in a single step. A sync that is interrupted leaves the previous result in place rather than half of a new one. Realize does keep past daily closes the venue no longer serves, because the December 31 mark depends on them and a fresh sync could not restore them. Once a year has closed, its year-end rows are final, so a figure you filed does not move when you sync again.

When the venue published no close for a position on December 31, Realize names that position on the statement and leaves it off Form 6781. It never prices a position at a number it made up.

What are the worked cases, and what do they check?

The specification for the engine is a set of worked cases. There is one document for each way of filing: standard capital, Section 1256 and gambling under §165(d). A fourth runs the same year through the routes side by side. Each case states the trades, the steps and the figure that must come out, and the engine is written to reproduce it.

Here is one row from the side-by-side cases, a losing year with every position closed.

The routes match here because the $3,000 cap on deducting a net capital loss comes from §1211(b), which applies to both. The rest carries forward under §1212. The cases model each route's mechanics if that route applies. No IRS guidance or court ruling addresses whether event contracts are Section 1256 contracts. Separately, federal appeals courts disagree on whether states can regulate them as gambling, which is Kalshi gambling? covers.

Which forms does Realize build?

Realize builds one set of documents per filing route, and a download never mixes two routes, because they report the same contracts in two ways that exclude each other.

• Section 1256: Form 6781 Part I, with line 8 at 40% short-term and line 9 at 60% long-term, and the transaction statement behind it.
• Standard capital: Form 8949, Box C in Part I and Box F in Part II, because no Form 1099-B covers the contracts. One row per closed lot, at its real cost and holding period.
• Gambling: the session log, with the figures for Schedule 1 and Schedule A.

Each set comes with a transaction CSV of the same rows, for a spreadsheet or tax software. Realize gives figures for Schedule D but does not produce Schedule D or Form 1040-X. Both net your trading against activity it cannot see, such as stock sales at a broker. The forms open in production for the 2026 filing season.

What does Realize not check?

Realize computes federal figures. State treatment is out of scope: some states do not follow the 60/40 split or the Section 1256 loss carryback, and Realize names that without computing it. It sees the venue accounts you connect, not your stock trades, other brokers or other venues, which is why it gives figures for Schedule D and not Schedule D itself. Second-order interactions such as the alternative minimum tax are outside what it models.

Nobody at Realize reviews an individual return, yours included. On the Forms + Filing tier, the filing partner is the preparer of your return.

No check can settle whether your contracts are Section 1256 contracts. Realize prices all three treatments so the choice is visible, and the choice is yours and your preparer's. The Section 1256 60/40 guide covers the mechanics, and are prediction markets taxed as gambling? covers the characterization question. Everything else is in the Prediction Market Tax Center.

Questions people ask

Did a CPA review my tax return?

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No. Nobody at Realize reviews an individual return. Every figure traces back to a trade the venue reported, so you or your preparer can check it line by line. If you use the Forms + Filing tier, the filing partner is the preparer of your return.

What happens to a position with no December 31 price?

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If the venue published no close for a position on December 31, Realize names that position on the transaction statement and leaves it off Form 6781. It never prices the position at a number it made up.

Does Realize decide which treatment I file under?

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No. Realize prices the same year under all three treatments, standard capital, Section 1256 and gambling, and shows its work. You and your preparer choose which one to file.