Prediction Market Taxes: A Complete Guide to How Event Contracts Get Taxed
Prediction market profits are taxable in the US, but how they're taxed depends entirely on whether the platform is a CFTC-regulated exchange or an unregulated, crypto-based one - regulated contracts have a real claim to favorable Section 1256 treatment, while unregulated activity typically falls back to standard capital gains or gambling rules.
This guide breaks down what tax forms to expect, how to report gains and losses, and whether your prediction market activity counts as gambling.
Prediction Market Taxes: Regulated event contracts vs. unregulated contracts
The first thing to understand is that not all prediction markets are the same legal animal, and the tax questions flow directly from that.
Kalshi operates as a Designated Contract Market (DCM), meaning it is a futures exchange regulated by the Commodity Futures Trading Commission (CFTC). The things you trade on Kalshi are event contracts: standardized, exchange-listed derivatives that pay out $1 if an event happens and $0 if it doesn't. Robinhood's prediction markets are routed onto Kalshi's regulated exchange, so they inherit the same regulatory status.
Polymarket, by contrast, is a crypto-native platform. Positions are outcome tokens on the Polygon blockchain, purchased and redeemed with the stablecoin USDC. Historically it has operated outside the US regulatory perimeter for retail users, which changes both what tax forms exist (none) and which tax framework most plausibly applies (crypto property rules).
Is prediction market trading gambling for tax purposes?
The IRS has not issued guidance specifically on event contracts, so there are three competing frameworks:
Gambling: winnings are ordinary income, and losses are deductible only if you itemize, only up to the amount of your winnings. Starting in 2026, a 2025 law change caps the gambling loss deduction at 90% of losses, making this the least attractive framework.
Capital asset: each contract is property, so gains and losses are capital gains and losses reported on Form 8949 and Schedule D. Losses offset gains, plus up to $3,000 of ordinary income per year, with carryforward of the rest.
Section 1256 contract: because Kalshi is a CFTC-regulated DCM, there is a credible argument its contracts are regulated futures contracts eligible for 60/40 treatment (explained below).
Regulated contracts on Kalshi and Robinhood have a real claim to Section 1256 or capital treatment. Unregulated or offshore activity is harder to fit into Section 1256 and is more likely to fall under capital asset or gambling frameworks. Either way, the income is taxable. Rules differ outside the US, and nothing here is personalized tax advice.
Prediction market taxes: Section 1256 and 60/40 treatment
Section 1256 of the tax code covers regulated futures contracts and certain other exchange-traded derivatives. If a contract qualifies, three special rules apply:
60/40 split: 60% of your gain or loss is treated as long-term capital gain or loss and 40% as short-term, regardless of how long you held the position. Even a contract held for an hour gets mostly long-term treatment. For a top-bracket taxpayer, this blends to a maximum federal rate of roughly 26.8% instead of 37%.
Mark-to-market: open positions are treated as sold at fair market value on December 31, so unrealized year-end gains and losses count for that tax year.
Form 6781: you report the aggregate net gain or loss on Form 6781, which flows to Schedule D. Net Section 1256 losses can be carried back up to three years against prior Section 1256 gains, an option regular capital losses don't have.
Whether event contracts actually qualify as Section 1256 contracts is unsettled. The pro argument: they trade on a CFTC-designated contract market, which is the core requirement for regulated futures contracts. The counterargument: a binary yes/no event contract doesn't look like a traditional futures contract. Tax professionals genuinely disagree, and the IRS hasn't ruled. Keep that tension in mind as we go platform by platform.
Kalshi: How to File
Kalshi is the most straightforward platform administratively and the most debated substantively.
Read our full Kalshi Taxes Guide.
What forms you get
Kalshi has historically issued Form 1099-MISC to US users with net profits of $600 or more in a calendar year, reporting net profit as other income. Check your Kalshi tax documents each year, because reporting practices can change, and always start from the form you actually received.
How to report
The 1099-MISC implies ordinary income treatment: report the amount on Schedule 1 as other income. That's the path of least resistance and matches what the IRS receives.
Some taxpayers and advisors instead take the Section 1256 position, reporting Kalshi results on Form 6781 with 60/40 treatment. If you do this, the amount on your return won't appear where the 1099-MISC says it should, which can trigger an IRS matching notice. Anyone taking this position should work with a tax professional and be prepared to explain the reporting.
Losses on Kalshi
This is where treatment matters most:
Under ordinary income treatment, a net annual loss is awkward. If it's gambling, losses are an itemized deduction capped at winnings (and capped at 90% of losses starting in 2026). If you don't itemize, the loss deduction is effectively lost.
Under capital or Section 1256 treatment, net losses are capital losses: they offset other capital gains, then up to $3,000 of ordinary income per year, with Section 1256 adding the three-year carryback option.
Keep your own complete trade history regardless. Kalshi's 1099 reports a single net number, and you need position-level records to support any treatment you choose.
Polymarket: How to file
Polymarket works differently because everything happens on-chain.
Read our full Polymarket Taxes Guide.
The US access landscape
Polymarket settled with the CFTC in 2022 and agreed to restrict US persons from trading. Since then, its US status has been in flux: reports have long indicated that some US users accessed the platform anyway, and in 2025 Polymarket acquired QCEX, a CFTC-licensed exchange and clearinghouse, as part of a push toward regulated US availability. Where any individual user stands legally is a question for a lawyer, not a tax article. What is not ambiguous: if you're a US taxpayer and you made money on Polymarket, that income is taxable and reportable no matter how you accessed the platform.
No 1099s, full self-reporting
Polymarket issues no US tax forms. That doesn't mean the activity is invisible; it's on a public blockchain tied to your wallet address. You are responsible for reporting everything yourself.
The most defensible framework for most users is crypto property treatment: outcome tokens are property, so each sale or redemption is a taxable disposition. Report each one on Form 8949 and Schedule D.
Buy 1,000 YES shares at $0.40 ($400 of USDC). The market resolves YES and you redeem at $1.00 ($1,000). That's a $600 capital gain, short-term if held a year or less.
Buy 500 NO shares at $0.55 ($275) and sell at $0.30 ($150). That's a $125 capital loss, which offsets other gains.
Technically, spending USDC is also a disposition of property, though gains or losses on a dollar-pegged stablecoin are usually negligible. Section 1256 treatment is very hard to argue for Polymarket positions, since they don't trade on a CFTC-designated exchange.
Recordkeeping
Export your full trade history using your wallet address, and keep dates, quantities, cost basis, proceeds, and resolution outcomes for every market. High-volume traders can rack up thousands of dispositions in a year, so crypto tax software that can read your Polymarket wallet activity, like Awaken, saves an enormous amount of manual work.
Robinhood prediction market taxes
Robinhood offers prediction markets through Robinhood Derivatives, LLC, with contracts traded on Kalshi's CFTC-regulated exchange. Because Robinhood Derivatives is a registered futures broker, its tax reporting follows the futures playbook rather than Kalshi's own retail approach.
If your Robinhood Derivatives tax documents report your event contract results on a 1099-B as Section 1256 aggregate profit or loss, you report that net figure on Form 6781 and the 60/40 treatment described above applies: 60% long-term, 40% short-term, mark-to-market at year-end, and the three-year loss carryback. That's generally simpler than Kalshi's 1099-MISC situation, because the form and the favorable treatment line up.
The practical takeaway: don't assume Robinhood and Kalshi results get reported the same way just because the contracts trade on the same exchange. Open your actual tax documents from each and match your reporting to the forms.
Coinbase prediction market taxes
Coinbase offers prediction markets as a front-end onto Kalshi's regulated exchange, similar to Robinhood's arrangement.
When you trade an event contract through the Coinbase app, you're not trading a Coinbase-native product - you're placing an order into Kalshi's order book, and Coinbase is acting as the interface layer on top of it.
What forms you get
Because your trades settle on Kalshi's exchange, your cost basis, proceeds, and gain/loss calculations mirror what you'd see trading directly on Kalshi.
In practice, this means tax documentation for Coinbase prediction market activity has followed the same uneven pattern as Kalshi's own reporting: some users receive 1099 documentation covering specific transaction types, but a single comprehensive form capturing all event contract activity isn't guaranteed.
Don't assume Coinbase's crypto tax forms (like Form 1099-DA for digital asset transactions) automatically include your prediction market results - event contracts and crypto dispositions are different products routed through different reporting pipelines, even inside the same app.
How to report
Because the underlying contracts trade on a CFTC-designated exchange, Coinbase prediction market activity sits in the same unresolved position as Kalshi's: there's a credible Section 1256 argument (60/40 treatment, reported on Form 6781, as explained above), and there's a more conservative ordinary income or capital asset position depending on what documentation you actually receive.
Whichever position you take, make sure your reporting matches the form Coinbase or Kalshi actually sends you, not the treatment you'd prefer.
Losses on Coinbase prediction markets
The same fork applies here as with Kalshi: under ordinary income or gambling treatment, a net loss is only deductible if you itemize, and is capped at your winnings (with a 90% cap on gambling losses starting in 2026). Under capital or Section 1256 treatment, losses offset other capital gains, then up to $3,000 of ordinary income per year, with Section 1256 adding the three-year carryback.
The practical takeaway: routing through Coinbase doesn't change the underlying tax question, it just adds another layer of documentation to reconcile. Pull your actual trade history and whatever tax forms Coinbase issues before deciding how to report, rather than assuming your Coinbase activity is taxed the same way as your other crypto holdings on the platform.
Prediction Market Taxes Summary
Prediction market taxes come down to one question: what kind of platform generated the income, and what documentation, if any, backs it up.
Regulated exchanges like Kalshi, and the platforms routed through them like Robinhood and Coinbase, have a real (if still debated) claim to Section 1256's favorable 60/40 treatment, while unregulated or crypto-native platforms like Polymarket fall back to standard capital gains rules with no tax forms at all.
No matter which framework applies, the income is taxable whether or not you receive a 1099, whether or not you've withdrawn your funds, and whether or not the IRS has issued clear guidance on how to classify it.
The safest path is the same across every platform: keep your own complete trade history, match your reporting to whatever documentation you actually receive, and get a tax professional involved before taking an aggressive position, since the gap between treatments can mean a difference of ten or more percentage points in what you owe.
Prediction Market Taxes FAQs
Are prediction market winnings considered gambling income? There's no IRS guidance saying so, and for CFTC-regulated contracts on Kalshi or Robinhood, capital or Section 1256 treatment is the stronger framework. Gambling treatment matters mostly because it limits loss deductions to itemizers, caps them at winnings, and from 2026 caps them at 90% of losses.
I got a 1099-MISC from Kalshi but lost money overall. What do I do? Kalshi generally only issues a 1099-MISC when you have net profit of $600 or more, so a net loss usually means no form. If you did receive one, report consistently with your chosen treatment and keep complete trade records. Whether and how the loss is deductible depends on whether you treat the activity as gambling, capital, or Section 1256, so this is a good situation to run past a tax professional.
Does Polymarket report my activity to the IRS? Polymarket does not issue US tax forms. But your trades live permanently on a public blockchain linked to your wallet, and blockchain analytics make this activity traceable. Not receiving a 1099 never removes your obligation to report income.
Can I deduct prediction market losses? Under capital or Section 1256 treatment, yes: losses offset capital gains plus up to $3,000 of ordinary income annually, and Section 1256 losses can be carried back three years against prior Section 1256 gains. Under gambling treatment, losses are only an itemized deduction limited to winnings.
Do I owe taxes if I never withdrew my money from the platform? Yes. Taxes are triggered when contracts resolve or you sell positions at a gain, not when you cash out to your bank. On Polymarket, redeeming or selling outcome tokens is the taxable event even if the USDC stays in your wallet, and Section 1256 mark-to-market can tax unrealized year-end gains on open regulated contracts.
