Whether you're treating your winnings as gambling income, capital gains, or ordinary income, the reporting obligation stays the same. Here's how each path works.

If You're Reporting as Gambling or Other Income

Report your net prediction market winnings on Schedule 1 (Form 1040), Line 8b – Gambling (8z if reporting as Other Income).

If you have losses and you itemize deductions, you can claim them on Schedule A up to your winnings for the 2025 tax year. Starting in 2026, a 90% cap was introduced by the One Big Beautiful Bill Act (this may still change).

Kalshi example: You made $12,000 on contracts and lost $4,000. You report $12,000 as gambling income. If you itemize, you can deduct the full $4,000 in losses (capped at $12,000), leaving $8,000 as taxable income. For the 2026 tax year and onwards, you’d be limited to deducting only 90% of the loss ($3,600).

If You're Reporting as Capital Gains

Report each trade on Form 8949 with the sale date, proceeds, cost basis, and gain or loss. Summarize on Schedule D (Form 1040). Net capital losses up to $3,000 can offset ordinary income each year; anything beyond that carries forward.

Robinhood example: You bought 100 contracts at $0.45 and they settled at $1.00. Proceeds: $100. Cost basis: $45. Short-term capital gain: $55. That goes on Form 8949, Part I.

If You're Reporting as Section 1256 Contracts

Use Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles). Your net gain or loss is split 60/40: 60% flows to Schedule D as long-term, 40% as short-term.

Kalshi example: You net $10,000 for the year. On Form 6781, $6,000 is long-term (taxed at 0/15/20% depending on your bracket) and $4,000 is short-term (taxed at ordinary rates).

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Record keeping Requirements

Whatever classification you use, you need records. For each contract, keep:

• The date you entered the position
• The amount you paid (cost basis)
• The settlement date and amount you received (proceeds)
• The platform and contract type

Kalshi and Robinhood provide transaction history downloadable from your account. For Polymarket, you'll need to export your wallet transaction history - your wallet address on Polygonscan will show all on-chain activity, or you can use a portfolio tracking tool to pull the data automatically.

How Summ Can Help With Your Prediction Market Taxes

If you're trading on Polymarket or Kalshi, the complexity multiplies fast. Summ connects directly to crypto wallets and blockchain networks, automatically importing your transaction history, calculating your gains and losses, and generating data-backed tax reports. Log in or sign up to connect your accounts.

Summ supports:

• Wallet and exchange imports across 3,500+ sources
• Automatic categorization of gains, losses, and income events
• TurboTax integration for direct filing

Get started with Summ →

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