WagerMintsSection 1256
What Happens to Kalshi Positions Open on December 31?
Open positions are taxed at year-end only under Section 1256, which marks them at December 31 value. A worked example, and what to save before the year ends.
The WagerMints Team
Prediction-market tax research
October 23, 2026/5 min read
A position still open on December 31 is only taxed that year if you use Section 1256. Under that method, it counts as sold at fair market value on the last business day of the year. Under capital gains, ordinary income or gambling, you generally wait until it closes or settles. For 2026, the last business day is Thursday, December 31.
What happens under each tax method?
| Method | Open position on December 31 |
|---|---|
| Capital gains | Nothing to report yet. Taxed when you sell or it settles |
| Ordinary income | Nothing to report yet. Taxed when you sell or it settles |
| Gambling | Nothing to report yet. Taxed when the result is known or you sell |
| Section 1256 | Treated as sold at fair market value, with the gain or loss split 60% long-term and 40% short-term |
Section 1256 is disputed for event contracts. Camuso and Mukherjee conclude it isn’t available under the current statute, and White & Case argues for it. The IRS hasn’t ruled. Both sides of the argument.
How does the mark work in dollars?
You buy 1,000 Yes contracts at $0.40 in October 2026, for $400. On December 31 they trade at $0.70. The market settles in 2027. The prices are made up, and fees are left out.
| Method and outcome | 2026 | 2027 | Total |
|---|---|---|---|
| Section 1256, settles at $1 | $300 gain | $300 gain | $600 gain |
| Section 1256, settles at $0 | $300 gain | $700 loss | $400 loss |
| Capital gains, settles at $1 | Nothing | $600 gain | $600 gain |
| Capital gains, settles at $0 | Nothing | $400 loss | $400 loss |
The totals match. Only the timing and the rates differ. Look at the second row: under Section 1256 you report a $300 gain for 2026 on a position that ends up losing $400. Of that $300 gain, $180 counts as long-term and $120 as short-term. The $700 loss arrives in 2027, and a carryback election can let you apply it to the earlier gain.
Which price counts as the mark?
The statute and IRS Publication 550 both say fair market value on the last business day of the tax year. Neither says how to pick that number for an event contract. So:
- Record each open position’s price on December 31, and save a screenshot or file showing it.
- Write down which price you used, such as the last trade, and use the same approach for every position.
- Do this before the year rolls over, because the price may be harder to find later.
Which platforms does this apply to?
- Kalshi and Polymarket US: Section 1256 can be argued, because these are CFTC-regulated exchanges. It’s the position in dispute.
- polymarket.com: Section 1256 is out, so there is no year-end mark. Why polymarket.com is different.
- Brokers such as Robinhood: it depends on the exchange behind the contract. Check your platform.
What should you check before year-end?
- List everything you hold, with what you paid.
- Run your year under all four methods, so you can see whether a mark would help or hurt.
- If you sell a position at a loss to book it this year and buy back soon after, read about the wash sale question.
- On December 31, save your prices, even if you haven’t picked a method.
- Report the marks on Form 6781 if you use Section 1256.
WagerMints lists every open position in your report. Enter your December 31 prices there and they are included under Section 1256. A position with no price stays out and is named, so the report doesn’t guess a number.
Questions about open positions at year-end
Are open Kalshi positions taxed at the end of the year?
Only under Section 1256. That method treats open positions as sold at fair market value on the last business day of the year. Under capital gains, ordinary income or gambling, a position is generally taxed when it closes or settles.
What price do I use for the December 31 mark?
The law says fair market value on the last business day of the year. The IRS hasn't said which price that means for an event contract, such as the last trade or the midpoint. Record the price you use and where you got it, and use the same approach for every position.
Does the December 31 mark apply to polymarket.com?
No. Section 1256 needs a qualified board or exchange, and polymarket.com is not one, so its positions are taxed when they close or settle.
Do I pay tax twice on a marked position?
No. The mark changes your starting point for the next year. If you marked a position at $700, your gain or loss next year is measured from $700, not from what you paid.
Should I close positions before December 31?
That depends on your method and your year, so run the numbers first. Closing a position moves its gain or loss into this year under every method. Talk to a preparer if the amounts are large.
General information about US federal tax, not tax advice.
Sources
Run this against your own trades
WagerMints computes all four methods from your real Kalshi export or Polymarket wallet, side by side. Your trade data is processed in memory, not stored unless you opt in to share it.
Run your reportFull guides: Kalshi taxes, Polymarket taxes, the four methods and the tax glossary. Or try the free prediction market tax calculator.
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