IRS leaves event contracts out of its futures tax rules
A wagering-loss rule could cap deductible losses at 90%, leaving even break-even traders owing tax.
The hit
Traders betting on Kalshi & Polymarket are assuming their profits qualify for the 60/40 tax break built for futures & S&P 500 options, according to 24/7 Wall St. The Internal Revenue Code never names prediction markets, & no IRS notice, ruling or publication addresses how event contracts should be taxed.
Why it matters
Getting the classification wrong is not a paperwork issue. If event contracts were ever treated as wagering rather than capital gains, loss deductions cap at 90% of losses, limited to that year’s wagering gains, & only as an itemised deduction. A trader who breaks even on paper could still owe tax, & anyone taking the standard deduction could get no offset for losses at all.
The record
| Section 1256 contracts covered | regulated futures, foreign currency contracts, non-equity options, dealer equity options & dealer securities futures (26 U.S.C. § 1256(b)(1)) |
|---|---|
| Qualifying exchange ruling | ICE Endex approved under § 1256(g)(7)(C) for contracts from 1 September 2026 (Rev. Rul. 2026-16) |
| Fund strategy review | Notice 2026-62 examines futures-based tax strategies; comment period closed 28 October 2026 |
What happens next
Watch for any IRS or Treasury follow-up to Notice 2026-62. Until guidance arrives, 24/7 Wall St advises traders to keep full records of every contract, platform & year-end position.
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