Prediction Market Taxes: What You Need to Know in 2026

Made money on Polymarket or Kalshi? Congrats. Now the fun part: figuring out taxes.

Prediction market taxation is still a gray area in many ways, but here’s what we know and how to stay on the right side of the IRS.

The Basic Rules

Prediction market profits are generally taxable as either capital gains or ordinary income. The classification depends on how you trade and how the IRS views your activity.

For most retail traders: Profits are treated as short-term capital gains (taxed at your ordinary income rate) if positions are held less than a year.

For frequent traders: If trading is your primary activity, you might be classified as a trader for tax purposes, which has different implications.

Platform-Specific Considerations

Kalshi: As a CFTC-regulated exchange, Kalshi provides 1099 forms for US users. You’ll receive documentation of your trading activity, making reporting straightforward.

Polymarket: Crypto-based platform. You’re responsible for tracking your own activity. Tools like Koinly or CoinTracker can help calculate gains and losses from on-chain activity.

What to Track

Keep records of:

• Every trade (buy/sell date, amounts, prices)
• Deposits and withdrawals
• Platform fees paid
• Wallet addresses used

Good record-keeping now saves pain at tax time.

Losses Are Valuable

Lost money trading? Those losses can offset gains. You can deduct up to $3,000 in net capital losses against ordinary income per year, carrying forward excess losses to future years.

Get Professional Help

This article is not tax advice. Prediction market taxation is evolving. Consult a CPA or tax attorney who understands crypto and derivatives trading.

The cost of professional advice is worth it to avoid issues with the IRS later.