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What Happens to Positions Open on December 31? Section 1256 Marked to Market

Under Section 1256 a position open on December 31 is treated as sold at that day's value and its basis resets January 1. Standard capital waits for the close.

By Owen Monagan9 min read
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For people filing event contracts under Section 1256, a position still open on December 31 is treated as sold at that day's fair market value. That value becomes its cost on January 1. Under the standard capital route, nothing counts until the position closes or settles. As of October 2026, the IRS has issued no guidance on whether event contracts are Section 1256 contracts, and no venue statement shows a December 31 value.

What happens to a position still open on December 31? It depends on the route

It depends on how you file. Of the people we've seen file, these are the most common ways they file. Here is one Kalshi position under each of them.

You buy 1,000 YES contracts at $0.30 on November 3, 2025, for $300. On December 31, 2025, the market's price is $0.18. On February 9, 2026, it resolves YES and pays $1,000.

Route20252026Two-year total
Section 1256(120), marked at $0.18, Form 6781820, from the $180 mark, Form 6781700
Standard capitalNothing700 short-term, Form 8949700
GamblingNothing700 of winnings, Schedule 1700

The total is the same on every row. What changes is the year and the kind of gain. Under gambling treatment, as under standard capital, the position counts in the year it settles.

How does the Section 1256 year-end mark work? Deemed sold at fair market value

A Section 1256 contract you still hold at year end is treated as sold on the last business day of the year. That rule is §1256(a)(1). Nothing is sold and nothing is paid out. But the gain or loss up to that day counts on that year's return.

People call this being marked to market. The price used is the contract's fair market value. The IRS repeats the rule in Publication 550 under "Mark-to-Market Rule".

The marked position goes on Form 6781 line 1 with the positions you closed. The line itself is in how to fill out Form 6781.

This is not the "mark-to-market election". That is a separate choice for people in the business of trading, under section 475(f), made on Form 3115.

The 60/40 split applies to the mark

The mark is split like any other Section 1256 result. Under §1256(a)(3), 40% is short-term and 60% is long-term, however long you held the contract.

In the example, the $120 loss marked in 2025 is $48 short-term and $72 long-term. The $820 gain in 2026 is $328 short-term and $492 long-term.

December 31 and the last business day: the same day until 2028

The statute says the last business day of the year. Through 2027, that is December 31. In 2028, December 31 is a Sunday, so the last business day is Friday, December 29.

Kalshi and Polymarket US quote prices on weekends and holidays. Nothing published says which day counts for a market that trades every day. Realize marks positions at December 31.

What is the January 1 basis reset? Why the mark is not counted twice

The December 31 value becomes the position's cost for the next year. Under §1256(a)(2), the gain or loss you later realize is adjusted for what the mark already counted.

So the next year's result is the final price minus the December 31 value. Add the two years and you get what the position actually made or lost.

The IRS example: a futures contract, $50,000 to $57,000 to $56,000

Publication 550 works this through for a futures contract. You buy it for $50,000 on June 3. On December 31 it is worth $57,000, so you report a $7,000 gain that year. You sell it the next February for $56,000.

The second year's result is a $1,000 loss: $57,000 minus $56,000. Over both years you made $6,000, which is $7,000 minus $1,000.

The same thing on an event contract: $300 to $180 to $1,000

The Kalshi position works the same way. The 2025 mark is $180 against a $300 cost, a $120 loss. From January 1, 2026, the cost is $180.

When the market pays $1,000 in February, the 2026 result is $1,000 minus $180, an $820 gain. The two years add to $700. That is $1,000 minus the $300 you paid.

Skip the reset and figure 2026 from the original $300. Then 2026 shows $700, and the $120 loss from 2025 is counted twice.

A gain marked in December, lost in February: $350 to $620 to $0

The mark works the same way in the other direction. Take the open position from the Form 6781 guide: 1,000 YES bought for $350 in October 2025. On December 31, 2025, the price is $0.62, so it is marked at $620. That is a $270 gain in 2025.

In February 2026 the market resolves NO and pays nothing. The 2026 result is $0 minus $620, a $620 loss. The two years add to a $350 loss, which is what you paid.

That 2026 loss is a Section 1256 loss. In a year with a larger net Section 1256 loss, part of it can be carried back three years against earlier Section 1256 gains. The limits are in the Section 1256 loss carryback guide.

What happens under the standard capital route? Nothing until it closes

Nothing happens at year end. Under standard capital, an open position has no result until you sell it or it settles. The whole result lands in that year, on Form 8949.

Whether it is short-term or long-term depends on how long you held it. A position held one year or less is short-term. Both positions here are short-term, because each was held under six months. How the route works is in standard capital treatment.

Both positions, both routes, year by year

PositionRoute20252026Total
$300 cost, $180 mark, resolves YESSection 1256(120)820700
$300 cost, $180 mark, resolves YESStandard capitalnone700700
$350 cost, $620 mark, resolves NOSection 1256270(620)(350)
$350 cost, $620 mark, resolves NOStandard capitalnone(350)(350)

The totals match on each position. The routes differ in which year holds the result and how it is split.

Where does a December 31 price come from? Kalshi and Polymarket US

It comes from the venue's own price history. The two venues publish different kinds of price. Kalshi's daily close is a trade price. Polymarket US publishes prices built from quotes, the bids and offers waiting on its order book.

Kalshi: the last trade on December 31

Kalshi publishes a daily candle for each market. A candle is a summary of one day's prices. Its close is the last price a YES contract traded at that day. Kalshi's candlestick documentation says the close can be empty when nothing traded. It also gives the last trade before the day.

Realize uses the last trade on December 31. If the market did not trade that day, it uses the midpoint of the YES bid and the YES ask at the end of the day. If there was no bid and ask either, it uses the last price before December 31. A NO position is valued at $1 minus the YES price.

Kalshi's daily candle ends at midnight Eastern time. The candle for December 31 is stamped January 1 at 05:00 UTC. That trap, and the others in reading the candles, are in how to file Kalshi taxes.

Polymarket US: a price from quotes, not trades

Polymarket US publishes a public price history for each market. Its prices come from the best bid and the best ask on the order book. The documentation says they "are not individual trades."

Polymarket US publishes no trade prices, so Realize uses its quote-based price. That is the midpoint between the YES bid and the YES ask at the end of December 31, Eastern time.

Which one is fair market value?

The statute says fair market value and does not say how to find it. No ruling or court decision says whether an event contract's fair market value is its last trade or a quote. Realize uses the venue's trade price wherever there is one, and a quote where there is not. That is how Realize builds the value, not a ruling on which price is correct.

What if a market has no price on December 31?

Realize leaves the position off Form 6781. It does that only when it has no price at all for that market on December 31. On Kalshi, that means no trade, no quote and no earlier price, which happens when Kalshi serves no price history for the market. On Polymarket US, it means the price history has no price for December 31.

Realize does not mark the position at its cost or at a made-up price. It names the position on the statement attached to the form. The position's result then counts in the year it closes.

What does a venue's year-end statement show for open positions?

None of the four venues checked lists a December 31 value for a position you still hold. Each venue's own pages describe what it gives you, and that value is not among them.

Kalshi, Polymarket US, Robinhood and Coinbase

VenueWhat it gives youA December 31 value for an open position
KalshiA yearly P&L statement of closed positions, first in, first out, updated monthlyNot on the statement or forms
Polymarket USNo retail P&L statement; the portfolio page shows open positions as of nowNot documented
RobinhoodAn event contracts annual statement, typically late January or early FebruaryNot among the contents Robinhood lists
CoinbaseA daily statement, which Coinbase names as the official recordCoinbase has not published a year-end position statement

None of the four has published that it sends a Form 1099-B for event contracts. Robinhood says it "doesn't provide a 1099 for event contract trades."

What a futures broker's Form 1099-B shows instead

A futures broker reports this number for you. On Form 1099-B, box 10 shows the unrealized profit or loss on contracts open on December 31. The form says these "are considered closed out as of that date."

The next year, box 9 reverses it. Together the two boxes are the mark and the reset. For event contracts, the same two numbers come from the venue's price history and your own trades.

How Realize handles positions open on December 31

Realize reads your Kalshi and Polymarket US trades read-only. It prices every position open on December 31 from the venue's own history for that day: Kalshi's last trade where there is one, or Polymarket US's quote-based price.

For Section 1256, it records the year-end sale and the January 1 repurchase at the same price. The next close is then priced from the mark. For standard capital, it builds Form 8949 from real closes only, with no mark.

Realize reads past prices from the venue's history. So a year that ended before you connected can still be filed. A position with no price is left off Form 6781 and named. Realize does not choose your treatment. It also offers a call with a CPA. For the wider picture, start at the Prediction Market Tax Center.

Sources

Questions people ask

Are open Kalshi or Polymarket positions taxed before they settle?

Only for people filing them under Section 1256. Under that route a position open on December 31 is treated as sold at that day's value, and its gain or loss counts that year. Under standard capital it counts only when it closes or settles.

Is the December 31 mark extra tax?

No. It moves part of a position's result into an earlier year. The next year's result is figured from the marked value, so the two years add up to what the position actually made or lost.

Which price is used for the year-end mark?

The statute says fair market value and does not name a price. Realize uses the venue's trade price where there is one. On Kalshi that is the last trade on December 31; with no trade that day, it is the midpoint of the bid and ask, then the last earlier price. Polymarket US publishes no trade prices, so Realize uses its quote-based price.

Do Kalshi or Polymarket report open positions to the IRS?

Neither has published that it sends a Form 1099-B for event contracts. Kalshi's P&L statement covers closed positions only, and Polymarket US documents no retail statement.

What if a position open on December 31 settles in January?

Under Section 1256, January's result is the payout minus the December 31 value. Under standard capital, it is the payout minus what you paid, all counted in the year it settles.

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