QastLedger
A contract on who wins the Super Bowl looks a lot like a bet. So it's natural to ask whether prediction market profits are gambling winnings. The answer affects how much tax you pay, and especially how your losses are handled.
Why most traders report them as capital gains
Kalshi is a CFTC-regulated exchange, and its contracts are financial derivatives. Kalshi's own year-end tax statement reports them as Section 1256 contracts, which are taxed as capital gains and losses with the 60/40 split.
You can buy a position, sell it before the event, and trade against other people rather than a house. That's how a financial market works, and it's the main argument for capital treatment.
Polymarket is less settled, because its main international platform isn't a regulated exchange. Most traders still report it as capital gains, but some advisors reach other conclusions. See our Polymarket tax guide.
Why the difference matters: losses
The biggest difference isn't how gains are taxed. It's what you can do with losses.
| Capital gains | Gambling | |
|---|---|---|
| Profits taxed as | Capital gains (60/40 for Section 1256) | Ordinary income |
| Losses offset | Capital gains, plus up to $3,000 of other income per year | Gambling winnings only |
| Need to itemize? | No | Yes. Losses are an itemized deduction |
| Unused losses | Carry forward to future years | Lost |
Starting with the 2026 tax year, federal law also limits the gambling loss deduction to 90% of your losses. A gambler who wins $10,000 and loses $10,000 can end up owing tax on $1,000 despite breaking even.
Most people take the standard deduction, and they get no deduction at all for gambling losses. Treated as gambling, a trader with $20,000 of winning trades and $20,000 of losing trades could owe tax on the full $20,000.
What this means for you
- Be consistent. Pick one treatment for a platform with your advisor and use it every year.
- Keep full records either way. Every trade, fee and resolution, so you can support whatever position you take.
- State rules can differ. Some states look at prediction markets differently, so check your state's rules too.
QastLedger builds reports for capital gains treatment: Form 6781 for Section 1256 contracts and Form 8949 for holding-period treatment. If your advisor decides gambling treatment applies to you, your QastLedger history still gives them every trade they need.
This guide is general information, not tax advice. Tax treatment of event contracts is still evolving, so confirm how it applies to you with a tax professional.