Prediction Market Tax Guide 2026

Profits from prediction markets such as Kalshi, Polymarket US, ProphetX and OG are taxable. What isn't settled is *how*: as of September 2026 the IRS↗ (opens in a new tab) has issued no guidance on how event contracts traded on CFTC-regulated exchanges should be classified. This guide explains the competing positions, what platforms actually send you, and what to keep.

This guide is general information, not tax advice. For anything material, work with a tax professional who has handled event contracts.

Three competing treatments

Tax professionals currently argue for three different treatments:

• Gambling income. Profits are reported as other income, and losses are deductible only as an itemized deduction up to your winnings.
• Ordinary income or capital gains on a derivative, depending on the facts.
• Section 1256 contracts (60% long-term / 40% short-term capital gains, marked to market at year-end, reported on Form 6781↗ (opens in a new tab)). This is the most aggressive position.

None of these has been confirmed by the IRS↗ (opens in a new tab). KPMG's 2026 analysis notes that fully collateralized binary contracts don't obviously meet the definition of a "regulated futures contract", that "nonequity option" status is unclear, and that swaps are excluded from Section 1256. So don't assume the 60/40 split applies.

Why the classification matters

From tax year 2026, gambling losses are deductible only up to 90% of losses (the 2025 One Big Beautiful Bill Act amended section 165(d)). Under gambling treatment, even a break-even trader can owe tax. Capital-gains or Section 1256 treatment would handle losses differently, which is why advice matters if you trade actively.

What platforms send you

• Kalshi (per its help center, June 2026): 1099-INT for interest, 1099-MISC for credits and rewards, 1099-B for crypto transfers and 1099-DA for digital assets. For event-contract trading it provides a downloadable profit-and-loss statement, not a 1099 showing your trading profit.
• Polymarket US: reporting practice for the US app isn't clearly published. Keep your own records.
• Other platforms: check the documents each app provides. Your profit is reportable whether or not you receive a form.

State tax

State treatment follows your state's income-tax rules. California and New York tax these profits at their regular rates; states such as Texas and Florida have no state income tax. See your state's page for details.

Sweepstakes apps (Rebet, Chalkboard)

Sweepstakes apps aren't CFTC-regulated exchanges. Prize redemptions are generally taxable; check each app's terms for the tax forms it issues and keep your own records.

What to track yourself

• Each platform's year-end profit-and-loss statement or trade export
• Deposits and withdrawals, for reconciliation
• Any promo credits or rewards (Kalshi reports rewards on 1099-MISC)

Bottom line

Report your prediction-market profits, keep complete records, and don't rely on any one tax treatment until the IRS↗ (opens in a new tab) issues guidance. If your activity is significant, talk to a tax professional before you file.

Best Platforms Compared

§ References & Sources

1. Commodity Futures Trading Commission (CFTC) (opens in a new tab)— U.S. federal regulator
2. CFTC Designated Contract Markets list (opens in a new tab)— CFTC
3. 26 U.S. Code § 1256 — Section 1256 contracts marked to market (opens in a new tab)— Cornell Law / U.S. Code
4. IRS Form 6781 — Gains and Losses From Section 1256 Contracts (opens in a new tab)— Internal Revenue Service
5. National Council on Problem Gambling — 1-800-GAMBLER (opens in a new tab)— NCPG

Frequently asked questions

How are prediction market gains taxed in the US?

They're taxable, but the IRS hasn't issued guidance on how event contracts are classified. Tax professionals argue for gambling income, ordinary income or capital gains, or (more aggressively) Section 1256 60/40 treatment. None has been confirmed.

Will I receive a 1099 from Kalshi?

Kalshi issues 1099s for interest, credits and rewards, crypto transfers and digital assets. For your event-contract trades it provides a downloadable profit-and-loss statement rather than a 1099 showing your trading profit.

What IRS form do I file?

It depends on the treatment you and your tax professional take: gambling income goes on Schedule 1, capital gains on Schedule D (Form 8949), and Section 1256 contracts on Form 6781. Because there's no IRS guidance yet, get advice before choosing.

Can I deduct losses?

Under gambling treatment, losses are deductible only as an itemized deduction up to your winnings, and from 2026 only 90% of gambling losses count. Other treatments work differently.

Are sweepstakes apps (Rebet, Chalkboard) taxed the same way?

Not necessarily. They aren't CFTC-regulated exchanges; prize redemptions are generally taxable. Check each app's terms for the tax forms it issues.