Prediction Market Tax Guide 2026

Prediction market trading on a CFTC-regulated platform like Kalshi, Robinhood, DraftKings Predictions, FanDuel Predicts or OG.com is taxed as commodities derivatives trading under federal law — not as gambling. That distinction matters enormously, because the federal tax treatment is significantly more favorable than the W-2G regime that applies to sportsbook winnings.

This guide is informational, not tax advice. For positions over a few thousand dollars in annual gains, work with a CPA who has experience with §1256 contracts.

Federal Treatment: IRC §1256 60/40

Event contracts traded on a CFTC Designated Contract Market (DCM) qualify as §1256 contracts under the Internal Revenue Code. This means:

• 60% of net gains are taxed as long-term capital gains (max federal rate 20%)
• 40% are taxed as short-term capital gains (max federal rate 37%)
• The holding period does not matter — you get this split even if you held the contract for one minute
• Positions open at year-end are marked to market (treated as if sold December 31 at fair value)
• Losses can be carried back 3 years against §1256 gains in those years (a benefit unique to §1256)

For a typical trader in the 24% federal bracket, the blended §1256 rate is roughly 22–24%, versus 24% on every dollar of sportsbook winnings reported as gambling income.

What Forms You Will Receive

Kalshi issues a Form 1099-B↗ by January 31 of the following year, reporting your aggregate §1256 gains and losses for the calendar year. The 1099-B is also filed directly with the IRS↗.

Robinhood consolidates prediction-market activity into its standard year-end 1099 package, with §1256 contracts shown in a dedicated section.

DraftKings Predictions and FanDuel Predicts issue 1099-B forms through the CME Group↗ settlement layer that backs their products.

OG.com (Crypto.com sports prediction) issues a 1099-B for federal reporting plus state-level reporting where applicable.

Polymarket does not issue US tax forms because it is not legally available to US residents. (If you traded on Polymarket from outside the US, the tax treatment depends on your country of residence.)

How to File

1. Receive your 1099-B from each platform by late January.
2. Report aggregate §1256 gains and losses on IRS↗ Form 6781↗ ("Gains and Losses From Section 1256 Contracts and Straddles").
3. The 60/40 split flows automatically from Form 6781↗ to Schedule D↗.
4. If you also trade on a sportsbook, those winnings are reported separately on Schedule 1↗, Line 8b as gambling income (and are subject to the W-2G regime).

State Tax

State income tax applies on top of federal in every state with an income tax. A few important nuances:

• California taxes §1256 gains as ordinary income (no preferential rate). Top marginal rate 13.3%.
• New York taxes §1256 gains as ordinary income. Top rate 10.9% (plus NYC if applicable).
• Texas, Florida, Tennessee, Washington, Wyoming, South Dakota, Nevada, Alaska, New Hampshire, Puerto Rico have no state income tax — your federal §1256 treatment is the entire bill.
• New Jersey taxes §1256 gains as ordinary income (top rate 10.75%) but does not apply gambling-specific rules to CFTC contracts, which is favorable on net.

Wash Sales and Other Quirks

The wash sale rule does not apply to §1256 contracts. You can sell a losing position, immediately buy it back, and still claim the loss in the current tax year. This is a meaningful planning advantage at year-end.

However, straddle rules can apply if you simultaneously hold offsetting YES and NO positions on the same contract. Most retail traders never trip this, but if you are systematically running paired positions, talk to a CPA.

Sweepstakes Platforms (Novig, Rebet, Chalkboard)

Sweepstakes-coin platforms are not CFTC-regulated and their prize redemptions are taxed as ordinary gambling income, not §1256 contracts. Expect a W-2G for individual prizes over $600 and a 1099-MISC for aggregate annual redemptions on most platforms.

What to Track Yourself

Even though the platform sends a 1099-B, keep your own records:

• A monthly export of all trades (Kalshi, Robinhood and DraftKings all support CSV exports)
• Deposits and withdrawals (for cost-basis verification)
• Any platform-issued bonuses or promo credits (potentially taxable as income at fair value)

Bottom Line

For US retail traders, the tax treatment of prediction markets is materially better than sportsbook gambling income. The §1256 60/40 split saves the typical trader 2–4 percentage points of effective tax rate, plus the loss-carryback option provides genuine downside protection. File correctly on Form 6781↗, keep clean records, and consult a CPA the year you cross $10,000 in annual prediction-market activity.