Tax Center
Prediction Market Taxes: How Prediction Markets Are Taxed
Prediction market taxes explained: gambling vs capital gains vs Section 1256, what each rate costs, which venues send forms, and how losses carry back.
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Prediction market taxation has one settled answer and one open question. Settled: every dollar of prediction market winnings you clear on Kalshi, Polymarket, or Robinhood is taxable income, form or no form. Each sale or resolution is a taxable event. Open: how that income gets characterized, which decides your tax rate and what happens to your losses.
Three treatments are in common use for that income, and each one uses different tax forms, different rates, and different loss rules. On identical trades the spread between them is not small.
This page walks all three, prices them on the same year, names which venues send which forms, covers the Section 1256 carryback, and lists the records each one is computed from. No jargon, no hype.
Are Prediction Markets Taxable? What the IRS Has and Hasn't Said
Yes. Prediction market income is taxable under the general rule that gross income includes all income from whatever source, whether your prediction market profits came to $80 or $80,000, and no reporting threshold exempts small gains. Which rules apply is the open question.
That gap is the subject of this page. Kalshi calls its products event contracts, and prediction market contracts are what the Internal Revenue Code has never named. The CFTC regulates them as derivatives. Most traders experience them as bets. Those three descriptions pull toward three different places in the tax code.
Taxes on Prediction Markets: Reporting Is Settled, Characterization Isn't
Separate the two questions and the confusion clears. Reporting is not optional. Taxable income is taxable income, and a missing 1099 changes nothing about your obligation. Characterization is where the real money sits, because it determines your rate, your tax forms, and whether a loss can offset anything at all.
The IRS has issued no guidance on event contracts: no revenue ruling, no notice, no FAQ, so none of the routes below has a ruling behind it. Of the people we've seen file, these are the three most common ways they file:
- Gambling. Gambling income is taxed at ordinary rates, gambling losses are an itemized deduction on Schedule A, and traders who do not itemize deduct nothing.
- Capital gains. The contract is a capital asset. Gains and losses land on Form 8949 and Schedule D, and a net capital loss offsets up to $3,000 of other income.
- Section 1256. Contracts get the 60/40 split, year-end mark-to-market, and a loss carryback that no other treatment offers.
The characterization question is covered in full in our guide on prediction markets taxed as gambling.
What CFTC Regulation Does and Doesn't Settle
Kalshi operates as a CFTC-designated contract market, and the Commodity Futures Trading Commission supervises it as a futures exchange, not a sportsbook. That regulatory status is an argument, not a ruling.
Meanwhile the wrong answers circulate freely among prediction market platforms and their users. The most common one is that no form means nothing to report. We collected the rest in what bettors get wrong about taxes.
Prediction Market Tax Treatment: Gambling, Capital Gains, or Section 1256?
Every filing position starts here. The three treatments are not interchangeable labels on the same number; they produce genuinely different tax bills from identical trading. Each is laid out below with the forms it uses and its loss rules.
Gambling Treatment and the OBBBA 90% Wagering-Loss Limit
Under gambling treatment your winnings are ordinary income and your losses are deductible only as itemized deductions, capped at winnings. If you take the standard deduction, you deduct nothing. Then the One Big Beautiful Bill Act cut the deduction further.
- Starting in tax year 2026, OBBBA amends IRC Section 165(d) to cap the wagering loss deduction at 90% of losses.
- Win $100,000 and lose $100,000 and you have broken even economically.
- The 90% cap lets you deduct $90,000, leaving $10,000 of taxable income you never earned.
That is phantom income, and it exists only under gambling treatment. The mechanics are in our guide to the OBBBA 90% gambling-loss limit.
Capital Gains Treatment: Form 8949, Schedule D, and the $3,000 Offset
Treat the contract as a capital asset and the machinery is familiar. You bought at a price, you sold or the market resolved, and the difference is a gain or loss reported on Form 8949, then carried to Schedule D on your Form 1040. Nearly every event contract resolves inside a year, so nearly every payout is a short-term capital gain taxed at your ordinary income rate, reported on your tax return.
On the loss side, losses offset gains dollar for dollar, and a net capital loss deducts up to $3,000 against other income each year under Section 1211(b), with the remainder carried forward indefinitely under Section 1212(b). Most tax software lands here.
Section 1256 Treatment: the 60/40 Rule, Mark-to-Market, and Form 6781
Contracts that qualify get a 60/40 split: 60% of the gain counts as a long-term capital gain and 40% as short-term, regardless of holding period. Open positions are marked to market on December 31 at fair market value, so unrealized gains count that year. Reporting runs through Form 6781, which flows to Schedule D.
Qualification is the open question. Section 1256 lists specific instruments, mostly regulated futures contracts on a qualified board or exchange, and event contracts are not named. Form 8275 is the IRS disclosure statement a return can include for a position without direct guidance.
Our full breakdown of the Section 1256 60/40 rule shows the arithmetic bracket by bracket.
Prediction Market Tax Rate: What Each Treatment Actually Costs You
There is no single prediction market tax rate, and no single answer on prediction market taxes. Your rate is a function of your tax bracket and the treatment you file under. Below is how the arithmetic works. Figures are illustrative.
Ordinary Income Rates vs. the 60/40 Blended Rate by Bracket
Ordinary income rates run 10% to 37%. Short-term capital gains use those same rates. The 60/40 blend moves 60% of the gain to long-term capital gains rates, which top out at 20%. Our worked example prices one top-bracket year both ways it can go, a $10,000 net gain and a $10,000 net loss, under each treatment:
| The year | Gambling | Standard capital | Section 1256 |
|---|---|---|---|
| $10,000 net gain | About $3,700 at 37%, more if the 90% cap or the standard deduction trims your losses | About $3,700, since short-term rates are ordinary rates | About $2,680: 60% at 20% plus 40% at 37% |
| $10,000 net loss, no other gains | No deduction for the net loss. Winnings stay taxable: losses offset them only if you itemize, and from 2026 only 90% of losses count, so a losing year can still leave taxable income | $3,000 against other income, $7,000 carried forward | $3,000 against other income and the rest carried forward, or carried back three years against prior Section 1256 gains |
On this year's gain, Section 1256 comes to about $2,680 against about $3,700 under the other two, and the split's effect grows with the gap between your ordinary rate and the long-term rate. Holding period does not enter into it. The wash sale rule of Section 1091 covers stock, securities and options on them, not futures-style contracts, and year-end mark-to-market leaves no deferred loss for it to disallow. This estimate ignores state taxes and the net investment income tax. If you finished the year up, the numbers are worked out for profitable traders.
How Losses Work: the $3,000 Offset, Carryforward, and the Section 1212(c) Carryback
A losing year is where the treatments diverge most. Under gambling rules a loss can vanish entirely. Under capital treatment it offsets gains, then $3,000 of ordinary income, then carries forward. Under Section 1256, IRC Section 1212(c) adds a third path: a net loss can be carried back three years against prior Section 1256 gains, earliest year first, with a refund claimed for each year it reaches. Each year absorbs no more than the smaller of its net Section 1256 gain or its net capital gain, and the carryback cannot create or increase a net operating loss.
We model all three side by side so you can see what each is worth. Under capital or Section 1256 treatment, a loss in a year with no gains does not disappear, and believing that it does leaves losses unclaimed. Our guide on prediction market losses walks the full treatment.
How Kalshi, Polymarket, and Robinhood Are Taxed Differently
The treatment argument is federal and venue-agnostic. The paperwork is not. Regulation, settlement currency, and reporting practice vary by platform, and that decides how much reconstruction work lands on you. Two positions, identical profit, wildly different filing labor.
CFTC Regulation, Settlement, and Which Venues Send 1099 Tax Forms
Kalshi is a CFTC-designated contract market and settles in dollars. A designated contract market is a qualified board or exchange under Section 1256; whether its event contracts are regulated futures contracts is the qualification question above. Kalshi does send tax forms, just not for your trading: a 1099-INT for interest on cash balances, a 1099-MISC for referral credits and rewards, and a limited 1099-B or 1099-DA tied to crypto transfers. None of them reports your event contract profit or loss. Kalshi tax forms lists what each form covers.
Polymarket is two products. Polymarket US, at polymarket.us, is run by QCX LLC, which the CFTC designated a contract market on July 9, 2025, and every trade there is in US dollars. As of October 8, 2026 its documentation has no tax section and names no form; its customer agreement only asks you to consent to receiving tax forms, including a 1099-B, electronically. The offshore polymarket.com is Polymarket's international, crypto-based product, where trades settle on a blockchain, so a trade there can also be a crypto disposal. Form 1099-DA reporting began with transactions on or after January 1, 2025, but the final regulations reach custodial brokers only, and decentralized or non-custodial platforms sit outside them. Kalshi vs Polymarket sets the two exchanges side by side, sources dated.
Estimate a Polymarket year before filing season: the Polymarket tax calculator runs without a sign-up. For the Kalshi-specific reporting picture, see are Kalshi winnings taxable.
Robinhood Derivatives, PredictIt, ForecastEx, and Newer Venues
Robinhood prediction market activity runs through Robinhood Derivatives, LLC, a CFTC-registered futures commission merchant that routes contracts to partner exchanges including Kalshi and ForecastEx. Robinhood has stated it will not provide 1099s for event contract trades. It sends an Event Contracts Annual Statement instead, which it labels "not a substitute tax reporting form," and nothing about event contracts reaches your consolidated 1099. PredictIt, ForecastEx and the newer venues each set their own reporting practice, so check each one's tax page for the year you traded.
The rule of thumb holds across all of them: the venue's paperwork does not settle your event contract tax treatment. Your records are what every treatment is computed from.
Prediction Market Tax Reporting: Which Tax Forms Arrive and What to Keep
Prediction market tax reporting is mostly a records problem wearing a rules problem's clothes. Prediction market traders file with numbers nobody hands them. Under any of the three routes, the return is filed from numbers assembled from the trade history, and traders who export it during the year still have it when a venue changes its format.
Cost Basis, Fills, and the December 31 Mark: Records That Survive an Audit
Your transaction history has to reconstruct every position. The IRS period of limitations runs three years in the ordinary case and six if you leave out more than 25% of the gross income your return reports, so monthly exports and a three-year floor are the working minimum. A carryback reaches three years back, which sets the same bar.
- Date, market, and contract description for every fill.
- Cost basis, proceeds, fees, and net result per lot.
- The December 31 fair market value of anything still open.
That last line is the one traders lose. Venue exports rebuild what closed. They do not tell you what an open contract was worth on the final trading day, and mark-to-market needs exactly that.
Realize pulls your full trade history, this year and the prior three, and reconciles it year by year including the open positions mark-to-market would touch. More on method in how to track your prediction market trades.
Amending a Prior Year With Form 1040-X and Your CPA
The carryback is an election, made by checking box D on Form 6781. The refund is claimed on Form 1045 or a Form 1040-X for each prior year the loss reaches, with an amended Form 6781 and Schedule D, earliest year first. Three years back is the limit.
Whoever prepares the amended return needs the trade-level file, not a summary.
How Realize helps
Realize connects to your accounts (read-only), pulls your full trade history, and organizes your gains and losses, including the year-end positions that mark-to-market would touch, into a clean, reconciled, year-by-year ledger. That gives you (or your CPA) the numbers needed under any of the three routes and to fill out Form 6781 if it applies. Plans and prices are on the pricing page, and the prediction market tax software comparison sets out the common approaches.
Every guide in the library is in the guide index, and the Kalshi reporting picture is on are Kalshi winnings taxable.
The bottom line
Prediction market taxation has one settled answer (yes, it's taxable) and one open question (how). Three treatments are the common ones: gambling, capital gains, and Section 1256. Each uses different forms, rates, and loss rules, and the gap between them grows with the size of the year. Complete records are what each one is computed from.
Questions people ask
Are prediction markets taxable?
Yes. Prediction market income is taxable under the general rule that gross income includes all income from whatever source, whether your profits came to $80 or $80,000, and no reporting threshold exempts small gains. Every dollar of prediction market winnings you clear on Kalshi, Polymarket, or Robinhood is taxable income, form or no form. Each sale or resolution is a taxable event.
How are prediction markets taxed?
Of the people we’ve seen file, these are the three most common ways they file: gambling (ordinary rates, itemized deduction capped at winnings), capital gains (Form 8949 and Schedule D, $3,000 annual offset), and Section 1256 (60/40 split, mark-to-market, loss carryback).
Do Kalshi and Polymarket send 1099 tax forms?
Kalshi sends 1099-INT for interest, 1099-MISC for referral credits, and limited 1099-B or 1099-DA for crypto transfers, but none report your event contract profit or loss. Polymarket US, the CFTC-regulated exchange at polymarket.us, trades in US dollars and, as of October 8, 2026, its documentation names no tax form; the offshore polymarket.com is a separate crypto product. Robinhood sends an Event Contracts Annual Statement but labels it "not a substitute tax reporting form."
What is the Section 1256 60/40 rule?
Contracts that qualify for Section 1256 get a 60/40 split: 60% of the gain counts as long-term capital gain and 40% as short-term, regardless of holding period. Open positions are marked to market on December 31. Event contracts are not named in Section 1256.
What records do I need to keep for prediction market taxes?
Date, market, and contract description for every fill; cost basis, proceeds, fees, and net result per lot; and the December 31 fair market value of anything still open. The IRS statute of limitations runs three years ordinarily and six if you leave out more than 25% of the gross income your return reports, so monthly exports and a three-year floor are the working minimum.
Can I carry prediction market losses back to prior years?
Under Section 1256 treatment, IRC Section 1212(c) allows a net loss to be carried back three years against prior Section 1256 gains, earliest year first, with a refund claimed on Form 1045 or Form 1040-X. Each year absorbs no more than the smaller of its net Section 1256 gain or its net capital gain, and the carryback cannot create or increase a net operating loss. Under capital or gambling treatment, no carryback is available.