Kalshi Taxes 2026: 1099s, IRS Reporting and Deducting Losses

This is general information, not tax advice. The IRS has issued no guidance on how prediction-market contracts are taxed, and individual situations vary. Talk to a CPA or tax attorney before you file. This guide was last checked against the text of the Internal Revenue Code, IRS Publication 550 and Kalshi's help center on October 17, 2026.

Yes, Kalshi profits are taxable. US law taxes income "from whatever source derived" (26 U.S.C. §61), and a gain on an event contract is income. What nobody can tell you with certainty is how it is taxed. The IRS has not said whether event contracts are Section 1256 contracts, ordinary capital assets, swaps or gambling. Each answer leads to different rates, forms and loss rules.

This guide covers what Kalshi itself reports, the possible tax treatments and the case for and against each, how losses work under each, and the records to keep so your adviser can choose a position.

Key points

• Taxable? Yes, at the federal level and in states with an income tax.
• What Kalshi reports: its help center lists 1099-INT for interest, 1099-MISC for credits and rewards, 1099-B for broker transactions such as crypto transfers, and 1099-DA for digital assets, each issued when IRS thresholds are met (Kalshi Tax info, as of October 2026). It also provides a yearly profit-and-loss statement.
• Section 1256 (60/40)? Some advisers take this position. It is not settled, and there are strong arguments against it.
• Interest: ordinary interest income on a 1099-INT.
• Promotional credit: Kalshi reports credits and rewards on a 1099-MISC.
• Need a CPA? If your net gains or losses run into the thousands, or you want to claim a 60/40 split, yes.

What Kalshi reports to you and the IRS

As of October 2026, Kalshi's Tax info page lists four forms:

Kalshi issues these only when you cross the IRS reporting thresholds, so you may receive none. They are under Account → Tax Info, and some arrive by email from Zenwork, Kalshi's tax-form provider.

The same page offers a profit-and-loss statement for each year, calculated on a first-in, first-out (FIFO) basis and updated on the first of each month. For most traders, this statement, not a 1099, is the record of event-contract gains and losses. The help center does not list a form that reports event-contract trading profits. It also does not say how those profits should be taxed. Kalshi states that it cannot give tax advice.

Not receiving a form does not mean you owe nothing. You must report taxable income whether or not a 1099 arrives.

The possible tax treatments

There are three main positions. They differ on rates, forms and, above all, losses.

Some advisers suggest a fourth view: treat event contracts as swaps, with gains and losses as ordinary income. The IRS has not addressed that either.

The case for and against Section 1256

Section 1256 is the most favourable treatment, which is why it gets the most attention. It is also the least certain.

The argument for it. Section 1256 covers any "regulated futures contract" and any "nonequity option", among other categories (26 U.S.C. §1256(b)(1)). Both must trade on a "qualified board or exchange", which includes an exchange the CFTC has designated as a contract market. Kalshi is one. Supporters say a binary contract on a CFTC exchange looks like a listed option or futures contract, so it should get the same treatment.

The arguments against it.

• The swap exclusion. Section 1256(b)(2)(B) says a Section 1256 contract does not include any interest-rate, currency, commodity, equity or credit-default swap "or similar agreement". Kalshi's legal position in its state cases is that its contracts are swaps under the Commodity Exchange Act. In April 2026 the Third Circuit agreed for sports contracts (Skadden). If they are swaps for regulatory purposes, the swap exclusion is a serious obstacle.
• The definitions do not fit neatly. A "regulated futures contract" under §1256(g)(1) is one where deposits and withdrawals depend on a daily mark-to-market margin system. Kalshi contracts are paid for in full up front, with no margin. Calling them "options" is also a stretch, because there is no underlying asset to buy or sell.
• No guidance. The IRS has published no ruling, notice or regulation on event contracts. IRS Publication 550 covers Section 1256 contracts but does not mention event contracts or prediction markets (Pub. 550).

Where that leaves you. Section 1256 is a position some advisers take, mostly for contracts on economic and financial outcomes such as Fed decisions or index levels. It is weaker for sports, politics and culture contracts. Many preparers report Kalshi gains as short-term capital gains, and some treat sports contracts as gambling. Choose with an adviser and stay consistent from year to year.

How Section 1256 works, if it applies

The 60/40 split. Every gain or loss counts as 60% long-term and 40% short-term, whether you held for five minutes or five months (§1256(a)(3)). For someone in the 32% bracket, where long-term gains are taxed at 15%, the blended rate works out to 21.8% (0.6 × 15% + 0.4 × 32%) instead of 32%. The 3.8% net investment income tax can apply on top for higher earners.

Mark-to-market at year-end. Open positions are treated as sold at fair market value on December 31. The gain or loss is taxed that year, and the year-end value becomes your new starting basis.

Form 6781. Section 1256 gains and losses go on Form 6781, which splits the net 60/40 and carries the results to Schedule D (IRS: Form 6781).

Loss carryback. An individual with a net Section 1256 loss can elect to carry it back three years, but only against net Section 1256 gains in those years (26 U.S.C. §1212(c)). Estates and trusts cannot. You make the election on Form 6781 and claim the refund on an amended return or Form 1045. A carryback only works if you reported Section 1256 gains in the earlier years, which is one more reason to pick a position early and keep it.

Wash sales. The wash-sale rule (§1091) is written for stock and securities. How it applies to event contracts has not been addressed. Do not assume either way without advice.

How losses work under each treatment

Section 1256. Net gains and losses on Form 6781 first. A net loss offsets other capital gains, then up to $3,000 a year of ordinary income ($1,500 if married filing separately), with the rest carried forward. The three-year carryback above is optional.

Ordinary capital asset. Losses offset capital gains. Up to $3,000 a year of net loss ($1,500 if married filing separately) can offset ordinary income. Unused losses carry forward with no time limit.

Gambling. Losses count only if you itemize deductions on Schedule A, and only up to your gambling winnings for the year. From the 2026 tax year, the One Big Beautiful Bill Act limits the deduction to 90% of losses (Kiplinger). A trader who wins $10,000 and loses $10,000 can deduct only $9,000, leaving $1,000 taxable. Most people take the standard deduction, so under this treatment their losses are worth nothing. See also IRS Topic 419.

The gap is large. A trader with a net loss gets some benefit under the first two treatments and often none under the third.

Interest and promotional credit

Interest. As of October 2026, Kalshi pays a variable 3.50% APY on cash and open positions for balances of $250 or more. You must give an SSN to receive more than $10 a year (Kalshi: APY on Kalshi). This is interest income, reported on a 1099-INT and taxed at ordinary rates. Keep it out of your trading totals and your Form 6781.

Credits and rewards. Kalshi reports credits and rewards on a 1099-MISC. Treat the credit as income when you receive it, and treat trades made with it like any other trade. Record the amount and date of each credit so you do not count it twice.

State taxes

Most states with an income tax start from your federal adjusted gross income, so they follow whatever federal treatment you use and apply their own rate. A few points:

• No broad income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Washington does levy a capital-gains excise tax on large long-term gains, so ask an adviser if a 60/40 split would put you over its threshold.
• Gambling-loss rules differ by state. Some states limit or disallow gambling-loss deductions, so the gambling treatment can cost more at state level.
• State court fights. Courts in Nevada, Ohio and Tennessee have let those states treat Kalshi's sports contracts as bets (see is Kalshi gambling?). No state has published tax guidance on Kalshi contracts. If you trade sports contracts heavily in one of those states, raise it with a CPA licensed there.

Kalshi compared with Polymarket

Polymarket's US app runs on a CFTC-designated exchange (QCX, acquired in July 2025, with US relaunch approved in November 2025). That raises the same Section 1256 questions as Kalshi. Check in the app which tax documents Polymarket provides. Do not assume they match Kalshi's.

On any platform that issues no tax forms, reporting is entirely yours, and you will need your own complete trade history. Keep each platform's records separate so you can show where every figure came from. See our Kalshi vs Polymarket comparison.

Records to keep

Kalshi's yearly P&L statement is a good start. Keep your own log as well so you can check it and rebuild it if needed.

A trade log. One row per position:

The example applies Kalshi's general fee formula on the way in and on the early sale. Contracts held to settlement pay no second trading fee.

Download the yearly P&L statement from Account → Tax Info after year-end, and save any 1099s.

Keep bank statements showing every deposit to and withdrawal from Kalshi. Deposits are not income, and you may need to prove that.

Record fees, interest and credits separately. Fees reduce your gain. Interest and credits are reported on their own forms.

Note your treatment. Write down which treatment you used each year and why, so you stay consistent.

Withholding and estimated taxes

Kalshi's help center does not describe any withholding on trading gains. If no tax is taken out, you may need to make quarterly estimated payments to avoid an underpayment penalty. You generally avoid the penalty if withholding and estimates cover at least 90% of this year's tax, or 100% of last year's (110% if last year's adjusted gross income was over $150,000) (IRS: estimated taxes).

As an illustration, $30,000 of gains taxed at a 24% federal rate and a 5% state rate adds about $7,200 of federal tax and $1,500 of state tax. That is $8,700 a year, or about $2,175 a quarter. Quarterly payments are due around April 15, June 15, September 15 and January 15. The IRS charges interest on underpayments at the federal short-term rate plus three percentage points, reset each quarter.

Common mistakes

1. Assuming no 1099 means no tax. Most Kalshi trading gains will not appear on a 1099, but they are still taxable.
2. Reporting deposits or gross proceeds as income. Your taxable figure is net gain after cost and fees, not the money that passed through the account.
3. Calling 60/40 settled. It is a filing position, not an IRS rule. Know what you are claiming and why.
4. Switching treatment from year to year to suit that year's result. That invites questions and can block a carryback.
5. Mixing interest into trading results. Report it as interest income (on Schedule B if your interest is large enough to require it), not on Form 6781 or Form 8949.
6. Forgetting credits. Kalshi reports credits and rewards on a 1099-MISC.

If you missed Kalshi income on an earlier return, file an amended return (Form 1040-X). Fixing it yourself before the IRS sends a notice usually costs less in penalties.

When to use a CPA

These are our suggested breakpoints, not rules:

• Small, occasional gains or losses: consumer tax software can usually handle capital-gains reporting. Check that it supports Form 6781 if you use the 60/40 position.
• Net gains or losses in the low thousands: a one-off consultation to choose and document a treatment is worth having.
• Large or frequent trading, sports-heavy trading in a contested state, or a planned carryback: use a CPA or tax attorney who has prepared returns with derivatives or prediction-market income.

Ask any adviser directly whether they have handled event contracts before. Many have not.

Frequently asked questions

Are Kalshi event contracts taxable?

Yes. Gains are taxable income at the federal level and in states with an income tax. How they are taxed (Section 1256, ordinary capital gains or gambling) is not settled, because the IRS has issued no guidance.

Does Kalshi issue a 1099?

For some items. As of October 2026, its help center lists 1099-INT (interest), 1099-MISC (credits and rewards), 1099-B (broker transactions such as crypto transfers) and 1099-DA (digital assets), issued when IRS thresholds are met. Trading gains are shown on the yearly P&L statement under Account → Tax Info.

Is Kalshi Section 1256?

Not clearly. Some advisers apply the 60/40 treatment because Kalshi is a CFTC-designated exchange. Others say the swap exclusion in §1256(b)(2) rules it out, since Kalshi argues its contracts are swaps and a federal appeals court has agreed. Get advice before claiming it.

Can I deduct Kalshi losses?

Usually, but how much depends on the treatment. Capital treatment, including Section 1256, allows losses against gains plus $3,000 a year against other income. Gambling treatment allows losses only if you itemize, only up to winnings, and from 2026 only 90% of them.

Is Kalshi interest taxable?

Yes. It is ordinary interest income, reported on a 1099-INT when it crosses the IRS threshold.

Do welcome bonuses count as income?

Kalshi reports credits and rewards on a 1099-MISC, so expect to report them as income.

Do I owe state tax on Kalshi gains?

In most states with an income tax, yes, following your federal treatment. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming have no broad income tax, though Washington taxes some large capital gains.

What if I forgot to report Kalshi income?

File Form 1040-X for the year you missed. Correcting it yourself before the IRS contacts you usually means lower penalties.

Sources

• 26 U.S.C. §1256 (Section 1256 contracts, including the swap exclusion in (b)(2)(B)) and 26 U.S.C. §1212 (loss carryback in (c)), Cornell Legal Information Institute
• IRS Publication 550, Investment Income and Expenses
• IRS: About Form 6781
• IRS Topic 419, Gambling income and losses
• IRS: Estimated taxes
• Kalshi help center: Tax info and APY on Kalshi (checked October 2026)
• Kiplinger: new cap on gambling loss deductions
• Skadden: Third Circuit affirms Kalshi's preliminary injunction (April 2026)