Prediction Market Tax Calculator
Your 2026 Kalshi and Polymarket US results, taxed three ways — gambling income with the 90% loss cap, short-term gains, and Section 1256 — side by side.
Rates, standard deduction and long-term capital-gains thresholds come from IRS Rev. Proc. 2025-32 (2026 inflation adjustments). The 90% wagering-loss cap is Public Law 119-21, section 70114, amending IRC §165(d). “Tax on your trading” is your total federal tax minus the tax you would owe with no trading at all.
Enter your 2026 winnings and losses. The calculator shows your federal tax three ways: as gambling income (with the new 90% loss cap), as short-term capital gains, and as Section 1256 contracts. The IRS has not said which applies, so the honest answer is the range.
Profit on every winning position, added up.
Amount lost on every losing position, added up.
Mortgage interest, state and local tax, charity.
Net result: $0. Federal tax with no trading at all: $7,912.
A · Gambling income
Winnings are ordinary income. Losses count only if you itemize, at 90% of losses and never more than winnings.
- Total federal tax
- $8,132
- Taxable income
- $61,000
- Taxed on money you didn't make
- $1,000
B · Short-term capital gains
Your net result is taxed at ordinary rates. A net loss offsets up to $3,000 of other income; the rest carries forward.
- Total federal tax
- $7,912
- Taxable income
- $60,000
C · Section 1256 (60/40)
A net gain is taxed 60% at long-term rates and 40% at ordinary rates. A net loss follows the capital-loss limit.
- Total federal tax
- $7,912
- Taxable income
- $60,000
On these numbers, Gambling income costs you $220 more than Section 1256 (60/40).
Not included: alternative minimum tax, the 3.8% net investment income tax, the limit on itemized deductions in the 37% bracket, credits, state tax, and how other capital gains you have would stack. The capital-loss limit is $3,000 for your filing status. Section 1256 losses can optionally be carried back three years against prior 1256 gains; that is not computed here.
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Related Tools
The 1099 checklist
- Kalshi lists four forms, sent to users who hit IRS thresholds: 1099-INT (interest), 1099-MISC (credits and rewards), 1099-B (broker transactions, crypto transfers) and 1099-DA (digital-asset transactions). Forms arrive by email from its tax-form provider; the profit-and-loss statement is under Account → Tax Info. Kalshi help center (read November 11, 2026).
- Polymarket US has no tax-form page in its public FAQs (checked November 11, 2026). Look for tax documents in your account and keep your own trade history.
- Whatever arrives, keep your full trade history: every treatment above starts from your winnings and losses.
Why break-even can still cost you
Under the gambling-income treatment, winnings are income and losses come back only as an itemized deduction, now capped at 90%. Win $10,000 and lose $10,000 and you made nothing, yet $1,000 stays taxable if you itemize, and all $10,000 does if you don't. The capital-gains treatments net the two first, so break-even owes nothing. The full explainer is how prediction-market winnings are taxed in 2026.
Frequently Asked Questions
How are Kalshi and Polymarket US winnings taxed?
The IRS has not issued guidance that settles it. Traders and tax professionals argue for three treatments: gambling income, short-term capital gains, or Section 1256 contracts taxed 60% long-term and 40% short-term. This calculator shows your tax under all three so you can see the range, then talk to a CPA.
What is the 90% gambling loss cap?
Starting with tax year 2026, the law signed July 4, 2025 (Public Law 119-21, section 70114) says the deduction for wagering losses "shall be equal to 90 percent of the amount of such losses" and is allowed "only to the extent of the gains". If prediction-market results are treated as gambling income, a trader who breaks even still pays tax on 10% of their losses.
Do I need to itemize to deduct prediction-market losses?
Under the gambling-income treatment, yes: wagering losses are an itemized deduction, so if you take the standard deduction ($16,100 single, $32,200 married filing jointly for 2026) your losses do not reduce your tax at all. Under the capital-gains treatments, losses net against gains whether or not you itemize.
What tax forms does Kalshi send?
Kalshi’s help center lists 1099-INT for interest, 1099-MISC for credits and rewards, 1099-B for broker transactions (crypto transfers) and 1099-DA for digital-asset transactions, sent to users who hit IRS reporting thresholds. It also provides a profit-and-loss statement under Account → Tax Info.
Does this include state tax?
No. Version one is federal only, and it does not compute the alternative minimum tax, the 3.8% net investment income tax, or the limit on itemized deductions in the top bracket.
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