How Are Kalshi and Polymarket Trades Taxed? The 4 Methods Traders Actually Use

Kalshi and Polymarket profits are taxable, and the IRS has not said how. Traders report them one of four ways: capital gains, ordinary income, gambling income or Section 1256. The same trades can produce very different bills under each. Neither platform sends a 1099 with your trading profit on it, so you work out the number yourself.

Are Kalshi and Polymarket trades taxable?

Yes, for US taxpayers. Profit is income whether or not a form arrives. Kalshi may send a 1099-MISC for rewards and a 1099-INT for interest on your cash balance, and polymarket.com sends nothing. The IRS has issued no notice, ruling, regulation or form instruction on event contracts.

What are the four ways to report them?

How does capital gains treatment work?

Each position is treated like a stock or crypto trade: you have a gain or loss when it closes. If your losses beat your gains, up to $3,000 of the net loss ($1,500 married filing separately) comes off your other income, and the rest carries forward with no time limit. Positions held over a year get lower long-term rates, but almost all prediction-market trades resolve sooner, so a gain is short-term and taxed at your normal rate.

How does ordinary income treatment work?

Your net profit for the year is added to your income and taxed at your normal rate. In a winning year the tax matches short-term capital gains. The two differ in a losing year: whether a net loss can reduce your other income depends on your facts, including whether your trading is a business, so ask a preparer before you rely on it.

How does gambling treatment work?

You report your total winnings as income, tracked by session rather than netted for the year. Losses only count if you itemize, only against winnings, and from 2026 only 90% of them (the 90% rule). On the standard deduction your losses count for nothing, so you can owe tax on your winning days in a year you lost money overall. This is usually the most expensive treatment for an active trader.

How does Section 1256 work?

60% of any gain is taxed at the long-term rate and 40% at the short-term rate, however long you held the position, and open positions count as sold at their December 31 price. In a winning year it is usually the cheapest of the four. Whether event contracts qualify is disputed, no IRS ruling or court has decided it, and it does not apply to polymarket.com trades at all. The arguments on both sides.

How much can the method change your bill?

Take a trader with three wins totaling $6,200 and three losses totaling $9,450, a net loss of $3,250.

• Capital gains: $3,000 comes off other income this year, and $250 carries forward.
• Section 1256: the same $3,000 and $250, with the option to carry back against past Section 1256 gains.
• Ordinary income: a $3,250 net loss. How much of it reduces other income depends on your facts.
• Gambling, itemizing (2026): 90% of losses is $8,505, more than the winnings, so the $6,200 of winnings is cancelled and the other losses are gone.
• Gambling, standard deduction: $6,200 of taxable income and no deduction, in a year the trader lost money.

Between capital gains and gambling on the standard deduction, that is a $9,200 gap in taxable income from the same trades. The main guide prices a winning year too, where a $20,000 profit costs anywhere from $3,720 to $14,400.

Which method applies to you?

Nobody with authority has decided, so it is a judgment you make and support, not a free choice. These narrow it down:

• Your platform. Kalshi and Polymarket US are CFTC-regulated exchanges, the precondition for even arguing Section 1256. polymarket.com is not one, so Section 1256 is unavailable for wallet trades.
• What you trade. In October 2026 a Tax Law Center paper concluded that sports event contracts appear to be wagers. Who argues what.
• How you trade. Frequent, business-like trading points some professionals to ordinary income, and occasional recreational betting points others to gambling.
• What you can support. Keep your full trade history and be able to show your math. A preparer can help you choose a position and stand behind it.

What should you do before you file?

1. Export your full history: Kalshi’s realized P&L file and activity export, or your Polymarket wallet history.
2. Run it through all four methods and see the dollar gap on your own trades.
3. Read the caveats on whichever method looks cheapest, since that one is usually the most contested.
4. Use one method for all your event contracts in the year, and report rewards and interest separately.
5. Take the comparison to a tax professional, especially in your first year on these platforms. Where each number goes on the forms.

Platform detail: Kalshi taxes and Polymarket taxes.