Kalshi Taxes: Section 1256 and the 6040 Rule for Regulated Prediction Markets
Kalshi is a CFTC-regulated prediction market exchange, and because of that regulated status, its event contracts and crypto perpetual futures may qualify for Section 1256 tax treatment - a 60/40 split between long-term and short-term capital gains rates, applied regardless of how long you hold the position.
This means Kalshi traders could owe significantly less tax than they would on ordinary short-term crypto gains, but only if those trades are correctly separated and reported on Form 6781 instead of the standard Form 8949.
What Kalshi is (and why "regulated" matters)
Kalshi is a prediction market: a platform where you trade contracts on the outcome of real-world events. Will the Fed cut rates at the next meeting? Will a bill pass? Who wins an election? Each contract resolves to a fixed payout (typically $1) if the event happens and $0 if it doesn't, and you can buy or sell either side at prices between those bounds. If you buy a "Yes" contract at $0.35 and the event happens, your contract settles at $1.00 - a $0.65 gain per contract.
The key distinction from offshore prediction markets: Kalshi is a Designated Contract Market (DCM) regulated by the Commodity Futures Trading Commission (CFTC) - the same regulator that oversees US futures exchanges like the CME. Kalshi has also expanded beyond event contracts into perpetual futures (perps) on crypto assets, offered through the same regulated framework. A perpetual future is a derivative that tracks an asset's price without an expiry date, kept in line with spot prices through periodic funding payments.
That regulatory status isn't just a trust signal. It changes which part of the tax code your trades may fall under.
Filing Kalshi Taxes: Section 1256, the 60/40 rule, explained
Section 1256 covers certain contracts traded on regulated exchanges - regulated futures contracts, certain options, and related instruments listed on a "qualified board or exchange." Contracts that qualify get two distinctive treatments:
1. The 60/40 split
Gains and losses on Section 1256 contracts are taxed as 60% long-term capital gains and 40% short-term capital gains - regardless of how long you held the position. You could hold a contract for ten minutes and still get 60% of the gain taxed at long-term rates.
Compare that to normal crypto or stock trades, where anything held under a year is taxed entirely at short-term rates (your ordinary income rate, up to 37% federally).
A concrete example. Say you're in the 35% ordinary income bracket with a 15% long-term capital gains rate, and you make $10,000 trading:
Without 1256 treatment (all short-term): $10,000 × 35% = $3,500 in tax
With 1256 treatment: ($6,000 × 15%) + ($4,000 × 35%) = $900 + $1,400 = $2,300 in tax
Same trades, $1,200 less in tax. For traders in the top bracket, the blended 1256 rate maxes out around 26.8% federally versus 37% for pure short-term gains.
2. Mark-to-market at year end
Section 1256 contracts are marked to market on December 31: open positions are treated as if you sold them at fair market value on the last trading day of the year, and the unrealized gain or loss counts for that tax year. When you eventually close the position, your basis is adjusted so you're not taxed twice.
This is different from normal capital gains rules, where nothing is taxable until you actually sell. It means an open Kalshi position with a big unrealized gain at year end can generate taxable income even though you haven't closed it.
3. Reporting and loss rules
Section 1256 gains and losses go on IRS Form 6781, then flow to Schedule D. One notable perk: net Section 1256 losses can be carried back up to three years (via an election) to offset prior Section 1256 gains - something regular capital losses can't do.
Why 1256 can apply to both Kalshi's event contracts and its perps
The threshold question for Section 1256 is generally whether the instrument is a regulated contract traded on a qualified board or exchange. Because Kalshi is a CFTC-regulated DCM, there's a strong argument that its listed contracts - both its event/prediction market contracts and its perpetual futures products - fall within Section 1256's scope. That's a meaningful contrast with:
Offshore prediction markets (like unregulated event platforms), where positions are generally treated as ordinary capital assets - no 60/40 split, no mark-to-market.
Offshore perps exchanges, where perp PnL is typically treated as short-term capital gain or ordinary income depending on your interpretation, with none of the 1256 benefits.
A candid caveat: the application of Section 1256 to event contracts specifically is an area where guidance is still developing, and reasonable practitioners can differ on edge cases. The regulated-exchange status of Kalshi puts its products in far stronger 1256 territory than anything offshore, but this is exactly the kind of question worth confirming with a tax professional for your situation. Tax treatment also varies significantly by country - everything above is US-specific.
What this means practically for Kalshi traders
A few takeaways worth internalizing:
Holding period doesn't matter. Don't bother holding a Kalshi position past a year for tax reasons - the 60/40 split applies either way.
Watch your open positions at year end. Mark-to-market means December 31 is a real tax event for open contracts.
Losses are more useful here. The three-year carryback election for net 1256 losses can recover taxes you already paid on prior 1256 gains.
Keep 1256 activity separate from your other crypto. Your Kalshi trades belong on Form 6781, not lumped in with your spot crypto trades on Form 8949. Mixing them up is a common (and expensive) mistake.
How Awaken handles Kalshi Taxes
Awaken supports Kalshi across both sides of the platform - its prediction market contracts and its perpetual futures products - so your positions show up correctly in your portfolio and in your tax reports.
Portfolio tracking
Connect your Kalshi account and Awaken pulls in your activity alongside your wallets and exchange accounts. You get one view of your event contract positions, perp positions, realized PnL, and funding payments, next to the rest of your crypto portfolio - instead of reconciling Kalshi's statements against everything else by hand.
Tax reporting built for regulated products
Because Kalshi's products may qualify for Section 1256 treatment, they need to be reported differently from your regular crypto disposals. Awaken categorizes your Kalshi prediction market and perpetual activity as regulated-product activity, keeping it separate from your Form 8949 transactions so the 60/40 treatment flows through correctly.
A dedicated report for your regulated activity
Awaken also provides a special downloadable report covering your regulated prediction market and perpetual futures information. It aggregates your Kalshi gains and losses in one place, formatted so you (or your accountant) can complete Form 6781 and apply the 60/40 split without digging through raw trade history. If your CPA has never seen a prediction market statement before, this is the document you hand them.
Kalshi Taxes Summary
Kalshi's CFTC regulation isn't just about legitimacy - it likely puts its contracts under Section 1256, which means blended 60/40 capital gains rates, year-end mark-to-market, and reporting on Form 6781 rather than the standard crypto forms. That's usually a better deal than ordinary short-term treatment, but it comes with its own mechanics you need to get right.
Awaken tracks your Kalshi prediction market and perp activity, keeps it correctly separated from your other crypto, and gives you a downloadable regulated-products report ready for tax time.
As always: this is general information about US tax treatment, not advice for your specific situation. Rules differ by country and can change, and the application of Section 1256 to newer products is still evolving - talk to a qualified tax professional before filing.
Kalshi Taxes FAQs
Does Kalshi get the same tax treatment as other crypto trading? No. Because Kalshi is a CFTC-regulated Designated Contract Market, its event contracts and crypto perpetual futures may qualify for Section 1256 treatment instead of standard crypto capital gains rules. That means a 60/40 blended tax rate and year-end mark-to-market - neither of which applies to typical spot crypto trades.
What is the 60/40 rule and how does it lower my tax bill? Under Section 1256, gains and losses are taxed as 60% long-term and 40% short-term capital gains regardless of how long you actually held the position - even a 10-minute trade qualifies. For someone in a 35% ordinary income bracket, this can mean a blended rate around 23–27% instead of paying the full short-term rate on every dollar.
Do I owe tax on open Kalshi positions I haven't closed yet? Potentially, yes. Section 1256 contracts are marked to market on December 31, meaning open positions are treated as if sold at fair market value on the last trading day of the year - so an unrealized gain can create taxable income even without a closed trade. Your cost basis is then adjusted so you're not taxed twice when you eventually close it.
What form do I use to report Kalshi gains and losses? Kalshi activity under Section 1256 is reported on Form 6781, then flows to Schedule D - not Form 8949, where regular crypto disposals go. Keeping the two separate matters, since mixing them is a common and costly filing mistake.
Can I use Kalshi losses to offset gains from previous years? Yes - net Section 1256 losses can be carried back up to three years via an election to offset prior Section 1256 gains, a benefit regular capital losses don't have. This makes Kalshi losses potentially more valuable than an equivalent loss on a standard crypto trade.
Also read:
