Free tool · No sign-up
See what your Polymarket losses could be worth at tax time.
Most Polymarket traders never claim their losses. Enter your all-time net on prediction markets and see what the deduction could be worth, as a range across the lowest (10%) and highest (37%) federal brackets. Because Polymarket US contracts get §1256 treatment, a losing year can offset capital gains and ordinary income for years to come.
Quick estimate
Estimated federal tax savings
$7,400 to $2,000
A rough lifetime range: what the deduction is worth between the 10% and 37% federal brackets. Your real rate lands in between. See how we calculate this and the assumptions. Not tax advice.
How we calculate
What we assume, and how the range works
- We treat your figure as your all-time net
- Polymarket US only became available to US traders recently, so a single lifetime win/loss number covers essentially your whole history on the CFTC-regulated US exchange. The §1256 loss carryback only reaches back three years, so older activity would not change the estimate anyway. Connect your account and Realize replaces this assumption with your real per-trade record.
- The range spans the lowest and highest federal brackets
- A loss deduction is worth its size times your ordinary tax rate. We do not ask your income, so we show both ends: what it is worth at the 10% bracket and at the 37% bracket. Your real savings land in between, set by your income and filing status. Against ordinary income the deduction is capped at $3,000 a year and carries forward until it is used up, so the total is the same, it just arrives over more than one return.
- What if I’m up?
- Whether §1256 helps a winning year comes down to how much you make. A win is taxed as short-term (ordinary income) by default, at your regular tax rate. §1256 taxes 60% of it at the lower long-term capital-gains rate instead. As long as your ordinary rate is higher than that long-term rate, filing under §1256 lowers your bill, and the wider the gap, the more you save, which is why higher earners benefit most. If your income is low enough that the two rates are close, there is little to gain either way.
- Why §1256, and the three-year carryback
- We lead with §1256, the most favorable read for CFTC-regulated prediction markets like Polymarket US: gains and losses split 60% long-term and 40% short-term, whatever the holding period. These contracts almost always settle within a year, so a winning year would otherwise be taxed entirely as short-term (ordinary) gains, the 60/40 split moves 60% of it to the lower long-term rate, which saves more the higher your bracket. A losing year is even better: a net §1256 loss can carry back up to three years against prior §1256 gains for a refund, the payday. Read the full §1256 60/40 guide.
- It is a strong but unsettled position
- The IRS has issued no guidance on prediction-market contracts and could challenge §1256 treatment, even for years already filed. Realize shows the work and the more conservative treatment too. The final call is yours and your CPA’s.
- Federal only
- This estimate ignores state tax, the net investment income tax (NIIT), and any other capital activity you have. It is not tax advice.
Polymarket taxes, answered
- Are Polymarket losses tax-deductible?
- Yes. Polymarket US event contracts trade on a CFTC-regulated, designated contract market, so we treat them as Section 1256 contracts. Losses are reported on Form 6781 and can offset capital gains and, up to $3,000 a year, ordinary income, with the remainder carried forward.
- Does this cover Polymarket US or the offshore polymarket.com?
- Polymarket US (api.polymarket.us), the CFTC-regulated US exchange. That regulation is what gives traders clean Section 1256 treatment, so it is what this calculator and Realize support. The offshore polymarket.com is taxed materially differently for US persons and is not supported.
- What is the Section 1256 60/40 rule?
- It is one of the most favorable tax rules a trader can use: 60% of your gains are treated as long-term, no matter how briefly you actually held the contract. Long-term gains are taxed at a lower rate than short-term ones, which are taxed as ordinary income at your regular tax bracket (that is the other 40%). So the more you earn, the more it saves you: ordinary rates run up to 37% while the long-term rate tops out at 20%. Because prediction-market contracts usually settle within a year, without Section 1256 the entire gain would be taxed at that higher short-term rate.
- Can I get a refund for a prior winning year on Polymarket?
- Possibly. A net Section 1256 loss can be carried back up to three years under §1212(c) to offset prior Section 1256 gains, which can generate a refund via an amended return. Realize computes your exact carryback once you connect your account.
Important
Realize is a data tool, not a tax advisor, and gives no tax, legal, or financial advice. The figures on this page are illustrative and depend on your full return, prior-year filings, and IRS processing. Verify every figure and consult a tax professional before filing. State rules vary. See our full tax disclaimer.