Reporting Kalshi contracts

External question — Personal Finance Stack Exchange Author: Jacob Greenfield Original post: https://money.stackexchange.com/questions/165101 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I am wondering how prediction markets such as Kalshi, PredictIt, etc. are taxed in the US? For example, Kalshi provides a 1099-INT form for interest payments (similar to a savings account) and a 1099-MISC form for "credit/rewards", which I believe refers to cash bonuses (e.g. welcome bonus, referral bonuses). However, beyond that, they simply provide you with a CSV of your transaction records. I am wondering, how should I report transactions on my tax return? Are they considered Section 1256 contracts? Should I simply report the total gain/loss as ordinary gains/losses? Capital gains/losses? Gambling income/losses? Does the wash sale rule apply? What specific forms should I file? Or is none of this even taxable in the first place?! Kalshi understandably seems reluctant to provide any further forms or tax advice and recommends contacting a tax professional. There is very little information online, probably because this type of market/exchange is still so new. An overview of how these markets work: Contracts settle to either $1 or $0 depending on whether or not some event happens. For example, if Alice bids 70¢ that Trump wins the election and Bob bids 30¢ that Trump does NOT win the election, those orders pair off and the exchange issues a pair of new contracts: Alice receives a "yes" contract, and Bob receives a "no" contract for the event "Trump wins the election". If the event settles to "yes", Alice receives $1 and Bob receives nothing; if the event settles to "no", Bob receives $1 and Alice receives nothing. Contracts can be bought and sold on prediction markets, which behave like typical stock exchanges. However, if at any point you own a "yes" contract and a "no" contract on the same event, they automatically cancel out to $1 cash (since regardless of the outcome, they will be worth a total of $1 together). This means you can exit a "yes" position by buying "no" contracts; thus, for example, "15¢ bid no" is functionally equivalent to "85¢ ask yes".

External answer — Personal Finance Stack Exchange Author: Ganesh Sittampalam Original post: https://money.stackexchange.com/a/165104 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Kalshi doesn't seem any different to any other prediction market. According to this article (from January 2025) it seems that it's currently typical for these markets, including Kalshi, to include net profits on the 1099-MISC forms.

External answer — Personal Finance Stack Exchange Author: littleadv Original post: https://money.stackexchange.com/a/165110 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. So if I distill the question, you're describing a situation where people place wagers on future events on which they have no direct influence, and get payouts if their wagers succeed. You're asking how this should be reported for tax purposes in the US. You're specifically asking if the IRC Sec. 1256 applies. First, let's identify the income. The relevant guidance is in the IRS Tax Topic 419 , gambling income. Gambling income includes but isn't limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips What you're describing is essentially a horse race. Now, what to do with it. You must report all gambling winnings on Form 1040 or Form 1040-SR (use Schedule 1 (Form 1040) PDF), including winnings that aren't reported on a Form W-2G PDF This tells us that regardless of how the winnings are reported (either through a formal W-2G form, 1099-MISC, or a CSV file directly to you as you described), the gambling winnings must be reported on your tax return, specifically on Schedule 1 (line 8b) . You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040) and kept a record of your winnings and losses You can deduct your gambling losses, to the extent of winnings, as itemized deduction on your Schedule A (line 16) . You cannot deduct more than you won. The IRC Sec. 1256 doesn't apply to gambling income. You're referring to placed bets as "contracts", but these are not contracts subject to the section. See the IRC Sec. 1256(b) : (b) Section 1256 contract defined (1) In generalFor purposes of this section, the term “section 1256 contract” means— (A) any regulated futures contract, (B) any foreign currency contract, (C) any nonequity option, (D) any dealer equity option, and (E) any dealer securities futures contract. Betting wager is none if these things. The "futures contract" in this context is a specifically regulated type of contract with an underlying marketable asset (commodity or security): (1) Regulated futures contracts defined The term “regulated futures contract” means a contract— (A) with respect to which the amount required to be deposited and the amount which may be withdrawn depends on a system of marking to market, and (B) which is traded on or subject to the rules of a qualified board or exchange. Online gambling may be illegal in some states. Replacing the word "bet" with "contract" doesn't change the substance of the transaction. You should check if these transactions are legal in your state.