Does Section 1256 Apply to Kalshi and Polymarket? The 60/40 Rule Explained

Nobody has decided whether Section 1256 applies to Kalshi, and the published analysis has moved against it. It does not apply to polymarket.com trades at all. Section 1256 taxes 60% of a gain at long-term rates however short the hold, so in a winning year it is usually the cheapest treatment. It also carries the most legal risk of the four.

What is Section 1256?

Section 1256 of the tax code covers a specific list of contracts, including regulated futures, and gives them three rules of their own:

• The 60/40 split. 60% of any gain or loss is long-term and 40% short-term, however long you held the position.
• Mark to market. Open positions count as sold at their December 31 price.
• Its own form. You report on Form 6781, and the split carries to Schedule D. You do not list each trade on Form 8949.

How much could Section 1256 save?

On a $20,000 short-term gain in the 24% bracket, capital gains or ordinary income costs $4,800. Section 1256 costs $3,720: $12,000 at the 15% long-term rate plus $8,000 at 24%. That is $1,080 of federal tax on this example, and it is the entire appeal. The rate at each income level.

Does Section 1256 apply to Kalshi?

It is contested, and no IRS ruling or court has decided it. Two things have to be true, and Kalshi clearly meets only the first.

1. The right venue. The contract must trade on a qualified board or exchange, such as a CFTC-designated contract market. Kalshi is one.
2. The right kind of contract. It must fit a category Section 1256 lists, such as a regulated futures contract, and avoid its exclusions. This is the part in dispute.

What is the argument against Section 1256?

Patrick Camuso and Sulolit Mukherjee (Tax Notes Federal, June 2026) conclude Section 1256 is not available under the current statute, for three reasons:

• The listed categories were built for price-based instruments, not contracts that resolve on a fact.
• Kalshi’s contracts lack the daily mark-to-market a regulated futures contract needs.
• The CFTC calls them swaps, and Section 1256(b)(2)(B) excludes swaps and “similar” agreements.

The Tax Law Center at NYU Law rejected the theory for sports contracts in October 2026, writing that the CFTC’s characterization “could actually undermine taxpayers’ attempts to frame these contracts as section 1256 contracts.” Days later the CFTC proposed writing event contracts into its definition of a swap. What the proposal changes.

What is the argument for Section 1256?

Kalshi is a federally regulated derivatives exchange, and its contracts trade there on standard terms. White & Case wrote in March 2026 that for a contract on a CFTC-regulated exchange, “the IRS will be hard pressed to treat the transaction as anything other than a ‘Section 1256 contract,’” while also saying the treatment is not yet known. And the swap exclusion has an open question in it: nobody has tested whether a yes/no contract is “similar” to the rate and price swaps the statute names. The full scoreboard.

Does Section 1256 apply to Polymarket?

It depends on which Polymarket, because eligibility follows the venue and not the brand.

• polymarket.com: no. The wallet-based platform is not a CFTC-regulated exchange, so it fails the venue test before any other question comes up. Polymarket taxes.
• Polymarket US: arguable, like Kalshi, and just as contested. It is a separate CFTC-regulated exchange run by QCX LLC that opened in December 2025. It does not change trades you made on polymarket.com.

Does Section 1256 apply to other platforms?

It follows the exchange that filled your trade. Robinhood routes event contracts to CFTC-regulated exchanges, so its contracts sit in the same dispute as Kalshi’s. A bet with a licensed sportsbook is gambling and has no Section 1256 case.

What happens to open positions under Section 1256?

Any position open on December 31 counts as sold at its market price that day, so you can owe tax on a position you have not cashed out. It also means you need a real year-end price for each one. A tool that only handles closed positions gives an incomplete answer if you carried positions across the year end. WagerMints names every open position in your report instead of guessing a price.

How do Section 1256 losses work?

A net loss follows the same $3,000 limit as capital gains, with one extra option: you can elect to carry it back up to three years against Section 1256 gains from those years. Losses under each treatment.

Should you use Section 1256?

That is a decision to make with a preparer. Work out what it would save you first, using your own trades, and weigh that against the risk of the IRS disagreeing. Camuso and Mukherjee warn that preparers claiming it without a documented statutory analysis and a Form 8275 disclosure are exposed to penalties, so ask about both. How Form 8275 works, how to fill out Form 6781, and what the December 31 mark does.

WagerMints prices your year under all four treatments, and marks Section 1256 as unavailable for polymarket.com wallets, so you can see the dollar gap before you decide. This post is general information, not tax advice.