Taxes on prediction market winnings, what is settled and what is not.

One thing is clear. Profits are taxable income. Almost everything else about how event contract gains are classified is unsettled, so this page explains the landscape and points you to a professional.

Four points to anchor on.

Start from the part nobody disputes.

The foundation is simple and not controversial. In the United States, income is taxable unless a specific provision excludes it, and there is no provision that excludes prediction market or event contract profits. So a gain is taxable. This holds regardless of whether the platform sends you any paperwork, and regardless of how the gain is eventually classified. If you came away with more than you put in, that profit is reportable income.

It is also clear that the obligation to report sits with you, not with the platform. Some traders assume that if no tax form arrives, there is nothing to report. That is not how it works. A form is a reporting convenience, and its absence does not change the underlying rule. The safe assumption is that you must track and report your own gains, and that you cannot rely on a platform to do it for you.

Finally, it is clear that losses and fees matter, but exactly how they offset gains depends on the classification that applies, which is the unsettled part. That is one reason records are so valuable. You cannot claim a loss or a fee you cannot document, and the right way to use them on a return follows from a classification question that, as of June 2026, does not have a single settled answer.

Three treatments commentators discuss.

The table below lays out the three approaches most often raised for event contract gains, so you can see why the label matters. None of these has been confirmed by the IRS for prediction markets as of June 2026, so read the table as a map of the debate rather than a recommendation. We are not telling you which row applies to you. That is exactly the question a qualified professional should answer on your facts.

Methodology: approaches summarised from tax practitioner commentary published in 2026, including discussion of Section 1256 treatment for CFTC regulated event contracts and of the gambling loss rules. The 90 percent loss cap reflects the One Big Beautiful Bill Act amendment to Internal Revenue Code Section 165(d), signed July 2025 and effective for tax years beginning 1 January 2026. This table summarises a debate; it is not advice and does not state which treatment applies to any reader.

Several plausible answers, no official ruling.

The open question is how event contract gains should be classified for tax. As of June 2026, the IRS has not issued guidance that directly resolves this for prediction markets, and reputable commentators describe more than one plausible treatment. Some discuss treatment as Section 1256 contracts, which carries its own rules, including marking open positions to market at year end and splitting the net result 60 percent long term and 40 percent short term. The argument rests largely on the fact that a venue such as Kalshi is a CFTC regulated exchange. Others discuss treatment as ordinary capital gains, and others raise the possibility of gambling income. These are materially different, and the consequences for what you owe and how you report can differ a great deal.

Because there is no official ruling, this page does not tell you which treatment applies to you, and you should be cautious of any source that states a single answer with certainty. The correct classification can turn on the specific contract, the platform, your records, your broader tax situation, and how the law develops, including how any disputes are resolved. Commentators themselves note that Section 1256 treatment is not a safe default and that binary event contracts do not obviously fit the traditional scope of that statute, which is a useful reminder of how open the question really is.

Reporting thresholds and the way losses are handled can also differ by classification, which is another reason the label matters and another reason not to guess. The honest summary is that the principle is settled, profits are taxable, while the mechanism, exactly how to classify and report those profits, is not settled and is evolving. Treat anyone who claims otherwise with care.

Given all of this, the responsible step is to consult a qualified tax professional who can look at your actual records and your situation. A professional can apply the current rules, weigh the competing treatments, and help you take a position you can support. That is not a disclaimer for its own sake. On an unsettled question with real money at stake, tailored advice from someone accountable to you is worth far more than a general rule of thumb.

The gambling loss cap, and why classification is not academic.

A recent change in the law shows why the classification question has real money attached to it. The One Big Beautiful Bill Act, signed in July 2025, amended Internal Revenue Code Section 165(d) so that, for tax years beginning on 1 January 2026, losses from wagering transactions are deductible at only 90 percent of the loss, and still only to the extent of wagering gains. Before this change, a gambler could in principle offset gains with the full amount of losses. From 2026 a sliver of loss is no longer deductible, which can leave a break even gambler owing tax on income they did not really keep, a result commentators have described as phantom income.

The point for prediction markets is conditional, and we want to be careful about it. If event contract activity were treated as gambling, this cap would apply, and a heavy trading year with offsetting wins and losses could produce a tax bill out of proportion to the actual profit. If instead the activity were treated as Section 1256 contracts or as ordinary capital gains, different loss rules would apply and this particular cap would not be the governing rule. Because the IRS has not resolved which treatment applies, you cannot assume the cap is irrelevant to you, and you also cannot assume it binds you. It is one more reason to get the classification right rather than guess.

It is also worth knowing that the gambling loss deduction is only available to taxpayers who itemise, and that bills have been introduced in Congress that would repeal the 90 percent cap, though as of June 2026 none has become law. We log changes like these on the regulatory updates page as they happen. The broad lesson is steady rather than alarming: the rules in this area move, the classification of event contract gains is unresolved, and the safest posture is good records now and professional advice before you file.

Keep records now, get advice before you file.

You do not need to resolve the tax debate to act sensibly during the year. Keep a running record of every trade, including dates, amounts, prices, fees, and the result, along with your deposits and withdrawals. Download any statements the platform provides and store them, even the ones labelled as not a tax form, because they help reconcile your own records. The work is far easier done as you go than reconstructed at filing time.

When filing approaches, bring those records to a qualified tax professional rather than choosing a treatment yourself from a forum or a blog. Ask them how they would classify your activity, what that means for the forms you file, and how losses and fees are handled under that approach. If your situation spans more than one platform or includes large positions, that advice becomes more valuable, not less.

Remember too that state rules can add another layer, and that the position can change between tax years as guidance develops. The combination of an unsettled federal question and varying state treatment is exactly the kind of situation where general information reaches its limit. Use this page to understand the shape of the problem, then let a professional apply it to your facts. This page is general information, not tax, legal, or financial advice.

A worked example, kept deliberately simple.

To see why the unsettled classification is more than a technicality, picture a trader who finished a year with 10,000 dollars of gains and 9,000 dollars of losses across many event contracts, for a real economic profit of 1,000 dollars. The numbers below are illustrative only. They ignore fees, brackets, and your own circumstances, and they are not a calculation of anyone's actual tax. They exist only to show how differently the three discussed treatments can land on the same trading year.

If the activity were treated as capital gains, the losses would offset the gains under the capital loss rules, and the trader would generally be taxed on something close to the net 1,000 dollar profit. If instead the activity were treated as gambling income from 2026, the trader would report the 10,000 dollars of winnings, but under the amended Section 165(d) could deduct only 90 percent of the 9,000 dollars in losses, or 8,100 dollars, and only if they itemise. That leaves 1,900 dollars of taxable income on a year that produced just 1,000 dollars in the pocket. The extra 900 dollars is the phantom income the loss cap creates, and a non itemiser could face an even harsher result because the wagering loss deduction is available only to those who itemise.

The Section 1256 route would bring its own rules again, including the 60 percent long term and 40 percent short term split and marking open positions to market at year end, which can change both the rate and the timing. We are not saying any of these is the correct treatment for event contracts, because as of June 2026 the IRS has not said. The example simply shows that the same economic outcome can carry a meaningfully different tax bill depending on a label that is currently undecided, which is precisely why guessing is a poor strategy and why a professional who can apply the current rules to your records is worth the cost.

One sensible habit follows from the example even while the law is unsettled. Because a profitable year can generate a tax bill, and because the size of that bill depends on a classification you cannot yet pin down, it is prudent to set aside a portion of any gains rather than treat the full balance as spendable. How much to reserve is itself a question for a professional, since it depends on which treatment is likely to apply and on your wider tax picture. The general point is that the uncertainty argues for caution with the money, not for ignoring the obligation.

Take this into the records, the rules, and the map.

Answered plainly.