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Taxes by stateLetters sent, suit dropped

Montana gambling winnings tax and Kalshi legal status

Montana taxes gambling winnings and prediction market profits as income (4.7% to 5.9%). Gambling losses only reduce your state tax if you itemize, and only up to your winnings.

As of October 27, 2026, no court order stops trading in Montana, and the state has not sued a platform. Where it stands

Checked October 27, 2026 against Montana’s tax department, court dockets and regulator records.

Montana at a glance

Income tax
4.7% to 5.9%
Gambling losses
Only if you itemize
2026 federal 90% rule
Follows it
Prediction markets
Letters sent, suit dropped

Income tax

How does Montana tax gambling and prediction market winnings?

For 2025, Montana taxes single filers at 4.7% up to $21,100 and 5.9% above (joint: $42,200). Net long-term capital gains are taxed at 3.0% and 4.1%.

Short-term gains are taxed like ordinary income at 4.7% and 5.9%. Only net long-term capital gains get the lower 3.0% and 4.1% rates.

Gambling losses

Can you deduct gambling losses in Montana?

Montana allows gambling losses only if you itemize on your federal return. Montana has no separate gambling loss rule and requires the same deduction type as your federal return.

  • You use the federal standard deduction or federal itemized deductions, whichever you took. Montana adds back state income tax taken as an itemized deduction, to the extent it doesn't push the deduction below the federal standard deduction.
  • Montana starts from federal taxable income and uses the federal standard or itemized deduction as filed, so the federal 90% limit carries through from 2026.

Timeline · 4 steps

Every step in Montana, in order

4 steps since Mar 26, 2025, oldest first. Each links the filing, order or page it comes from.

  1. Mar 26, 2025

    Regulator · Montana Department of Justice, Gambling Control Division · Cease-and-desist letter to Kalshi (Not applicable)

    The division sent Kalshi a cease-and-desist letter saying its event contracts are illegal gambling under Montana law and telling it to stop offering them in the state. A letter is not a court order.

    March 2025 letter (Exhibit 1 to Kalshi's complaint)

  2. Apr 6, 2026

    Regulator · Montana Department of Justice, Gambling Control Division · Cease-and-desist letter to Kalshi (Not applicable)

    The division sent a second letter saying its investigation found Kalshi's activity to be illegal gambling and threatening legal action. Kalshi says this broke a prior agreement between the sides.

    April 2026 letter (Exhibit 3 to Kalshi's complaint)

  3. Apr 12, 2026

    Court · U.S. District Court for the District of Montana · KalshiEX LLC v. Knudsen (No. 6:26-cv-00028)

    Kalshi sued the attorney general and gambling officials in federal court to block enforcement. The court paused the case on April 22 while the sides talked.

    Kalshi complaint, Apr. 12, 2026

  4. Sep 17, 2026

    Court · U.S. District Court for the District of Montana · KalshiEX LLC v. Knudsen (No. 6:26-cv-00028)

    Kalshi and Montana filed a joint dismissal: with prejudice for the five commission members and without prejudice for the attorney general and the gambling division, who keep their enforcement authority.

    Joint stipulation of dismissal, Sept. 17, 2026 (Doc. 35)

Federal courts

What the federal courts and the CFTC have said

States say prediction market sports contracts are bets that their gambling laws cover, while Kalshi and the CFTC say they are swaps, a kind of derivative that only the federal Commodity Exchange Act and the CFTC regulate. The Third Circuit appeals court sided with Kalshi against New Jersey in April 2026, while the Ninth Circuit (Nevada, August 2026) and the Sixth Circuit (Ohio and Tennessee, September 2026) ruled for the states, all at the preliminary stage. The Fourth Circuit (Maryland) heard argument in May 2026 and had not ruled as of November 3. New Jersey's petition to the Supreme Court, Flaherty v. KalshiEX (No. 26-299), is waiting on Kalshi's response due December 7, 2026, and the Court has not yet said whether it will hear the case. On October 9, 2026 the CFTC proposed a rule defining event contracts as swaps.

  1. Apr 6, 2026

    Court · U.S. Court of Appeals for the Third Circuit · KalshiEX LLC v. Flaherty (No. 25-1922)

    By a 2-1 vote, the appeals court for New Jersey, Pennsylvania and Delaware upheld an order that stops New Jersey from enforcing its gambling laws against Kalshi's sports contracts for now. It found Kalshi likely to win its argument that federal law overrides the state. This is a preliminary ruling, not a final judgment.

    Third Circuit opinion, Apr. 6, 2026

  2. Aug 28, 2026

    Court · U.S. Court of Appeals for the Ninth Circuit · KalshiEX LLC v. Assad (No. 25-7516)

    A unanimous three-judge panel upheld the order that lifted Kalshi's protection against Nevada, so Nevada may enforce its gambling laws against Kalshi's sports contracts. The court held that sports contracts are not swaps under federal law. It sent Kalshi's election contracts back to the district court. This is a preliminary ruling.

    Ninth Circuit opinion, Aug. 28, 2026

  3. Sep 2, 2026

    Court · Supreme Court of the United States · Flaherty v. KalshiEX, LLC (No. 26-299)

    New Jersey asked the Supreme Court to review the Third Circuit ruling. Kalshi's response is due December 7, 2026 after two extensions. Many states, tribes, the NFL and others have filed friend-of-the-court briefs. The Court has not decided whether to take the case.

    Supreme Court docket No. 26-299

  4. Sep 16, 2026

    Court · U.S. Court of Appeals for the Ninth Circuit · Blue Lake Rancheria v. Kalshi, Inc. (No. 25-7504)

    In a case brought by two California tribes, the court held the tribes are likely to win their claim that Kalshi's sports contracts offered on tribal lands break the federal Indian Gaming Regulatory Act, and sent the case back to the lower court. A Lanham Act (false advertising) claim was rejected.

    Ninth Circuit opinion, Sept. 16, 2026

  5. Sep 25, 2026

    Court · U.S. Court of Appeals for the Sixth Circuit · KalshiEX LLC v. Schuler (Ohio) and KalshiEX LLC v. Orgel (Tennessee) (Nos. 26-3196 and 26-5235)

    A unanimous panel upheld a federal judge's refusal to block Ohio's gambling laws and threw out the order that had protected Kalshi in Tennessee. It held Kalshi's sports contracts are not swaps and, even if they were, federal law does not override the states' gambling laws. The cases go back to the lower courts.

    Sixth Circuit opinion, Sept. 25, 2026

  6. Oct 9, 2026

    Regulator · Commodity Futures Trading Commission

    The CFTC proposed a rule that would expressly define event contracts, including those on sports, politics, culture and weather, as swaps, which would place them under federal rather than state oversight. The public may comment for 30 days after Federal Register publication (91 FR 66022). It is a proposal, not a final rule. The same day the CFTC issued an interim rule excluding casino-style gambling products, such as sportsbook wagers and casino games, from the swap definition (91 FR 65969).

    CFTC press release 9310-26, Oct. 9, 2026

  7. Oct 26, 2026

    Court · U.S. Court of Appeals for the Fourth Circuit · KalshiEX LLC v. Martin (Maryland) (No. 25-1892)

    No ruling yet. The appeal was argued May 7, 2026 and the parties were still filing supplemental authorities on Oct. 26, 2026.

    CourtListener docket, Fourth Circuit No. 25-1892

Your trades

Kalshi and Polymarket profits in Montana

The IRS hasn’t said how prediction market trades are taxed, so you pick one of four federal methods: capital gains, ordinary income, gambling or Section 1256. Montana starts from your federal figures, so the method you choose federally generally carries onto your state return. If you report as gambling, the loss rules above apply. The four methods, compared.

The court cases are about whether Montana can license or stop the platforms. None of them decides how your trades are taxed. Trades you already made, including positions an order made you close, still count in your tax year.

Ask your AI

Ask your AI about your taxes in Montana

Answer a few questions and we write the prompt for ChatGPT, Claude, Perplexity or any AI. It carries the four tax methods, your state’s rule and links to the pages behind them, checked November 3, 2026. Or run your actual trades for exact figures, free.

Tax year
Up or down this year?
Open positions on December 31?
Add rough numbers (optional)

The AI can then work the methods out for your year. Round figures are enough.

Your prompt

2,419 characters

I trade prediction markets on Kalshi. I'm working on my US federal taxes for 2026. I live in Montana.

From WagerMints, checked November 3, 2026:
- Kalshi's Documents page says it does not report profits and losses to the IRS.
- Forms it may send: 1099-INT for interest, 1099-MISC for credits and rewards, 1099-B or 1099-DA for crypto transfers.
- Its Profit and Loss statement uses first in, first out, is split by year and updates on the first morning of each month.
- Reward credits only appear in the activity export, not the trades export.
- The IRS has published no guidance on how event contracts are taxed.

Four ways traders report this:
1. Capital gains: Form 8949 and Schedule D, short- or long-term by holding period. Net losses offset up to $3,000 of other income a year, and the rest carries forward.
2. Section 1256: Form 6781, 60% long-term and 40% short-term however long I held. Positions open on December 31 count as sold at that day's value. Disputed: Camuso and Mukherjee (Tax Notes Federal, June 2026) conclude it isn't available, White & Case argues for it, and the CFTC's October 2026 proposal to call event contracts swaps cuts against it, because Section 1256 excludes swaps.
3. Ordinary income: net result on Schedule 1, line 8z.
4. Gambling: winnings on Schedule 1, line 8b. Losses only on Schedule A if I itemize, only up to winnings, and only 90% of them from 2026.

Montana: Montana taxes gambling winnings and prediction market profits as income (4.7% to 5.9%). Gambling losses only reduce your state tax if you itemize, and only up to your winnings.
Legal status there: As of October 27, 2026, no court order stops trading in Montana, and the state has not sued a platform.

Read these pages:
- https://wagermints.com/kalshi-taxes
- https://wagermints.com/blog/how-kalshi-calculates-profit-and-loss
- https://wagermints.com/blog/how-to-report-kalshi-polymarket-taxes
- https://wagermints.com/state-taxes/montana

My question: How would my year come out under each of the four methods?

How to answer:
- Say which links you opened, and never describe one you didn't open. If one fails, use the facts above and say so.
- Mark each point [linked source], [general tax rule] or [unsettled].
- Put the methods side by side in one table for my year, and state any number you assume.
- Don't pick a method for me. End with questions for a CPA or enrolled agent, then anything you need from me.
Open in ChatGPTOpen in ClaudeOpen in Perplexity

WagerMints doesn’t see or store what you type here. The prompt goes to the AI you pick, under that company’s terms. Never add your Social Security number, API keys or wallet keys. AI answers can be wrong, so check them against the linked sources and a preparer.

Questions

Questions about Montana

Does Montana tax gambling winnings?
Montana taxes gambling winnings and prediction market profits as income (4.7% to 5.9%). Gambling losses only reduce your state tax if you itemize, and only up to your winnings.
Can I deduct gambling losses in Montana?
Montana allows gambling losses only if you itemize on your federal return. Montana has no separate gambling loss rule and requires the same deduction type as your federal return.
Is Kalshi legal in Montana?
As of October 27, 2026, no court order stops trading in Montana, and the state has not sued a platform. Montana's gambling regulator sent Kalshi cease-and-desist letters in March 2025 and April 2026. Kalshi sued in April 2026 and the two sides dismissed the case on September 17, 2026, leaving the state free to bring enforcement later.
Does the court fight change how my trades are taxed?
No. These cases decide whether a state can license or stop the platforms. None of them decides how your trades are taxed, and trades you already made still count in your tax year.

States with the same rule on losses: Nebraska, New Mexico, New York, North Carolina, North Dakota, Oregon. All states.

Tax facts checked against Montana’s own tax pages on October 26, 2026; legal status on October 27, 2026. Rules and cases change, so confirm with current instructions before you file.

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See your own year four ways

WagerMints prices your Kalshi or Polymarket year under all four federal methods, side by side, so you can see what Montana is taxing before you file. Free, no account.

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