Are Kalshi Losses Tax Deductible? Four Treatments, Worked Out

Kalshi losses may or may not be tax deductible, and the answer depends on a question the IRS has not answered: what kind of income event contracts produce. Treated as capital assets, a net loss offsets gains and up to $3,000 of other income a year. Treated as gambling, losses only offset winnings, only if you itemize, and only 90% of them from 2026. Reported as plain "other income," a net loss usually does nothing at all.

OddsFile is software, not tax advice. The IRS has not issued guidance on how prediction-market contracts are taxed. This article explains the options and sources; a tax professional can tell you which position fits your situation.

Why the treatment decides everything

Kalshi is a CFTC-regulated exchange, but regulatory status does not settle tax character. Practitioners report Kalshi results in four different ways, each with its own loss rule:

The Section 1256 route is the most contested; many practitioners consider it aggressive for event contracts. See Section 1256 and prediction markets for why.

Worked example: a losing year

Assume a single filer in 2026, a 24% ordinary bracket and a 15% long-term rate (assumptions, not predictions). On Kalshi:

• Markets that closed at a profit: $18,000 of gains
• Markets that closed at a loss: $24,000 of losses
• Net result: −$6,000

Capital treatment

Net capital loss of $6,000. You deduct $3,000 against wages this year and carry $3,000 forward.

Tax effect this year: $3,000 × 24% = $720 saved. The carryforward can offset future gains or another $3,000 of income next year.

Section 1256 treatment

A net 1256 loss of $6,000 is also subject to the $3,000 capital loss limit, but you may elect to carry it back up to three years against prior Section 1256 gains (for example, if you traded futures in 2023–2025). Without prior 1256 gains, the result is similar to the capital treatment: about $720 saved this year, the rest carried forward.

Gambling treatment

Here winnings and losses are not netted on the front of the return:

1. Report $18,000 of gambling winnings as income.
2. If you itemize, deduct losses: 90% × $24,000 = $21,600, capped at winnings → $18,000.
3. Net effect: $0 taxable gambling income, but the $6,000 economic loss is gone forever. No carryforward.

If you don't itemize, step 2 disappears. You owe tax on $18,000 of winnings despite losing $6,000: about $4,320 at 24%. Itemizing only helps if your total itemized deductions beat the 2026 standard deduction ($16,100 single, $32,200 married filing jointly), and the $18,000 here would clear that on its own for a single filer; for a married couple, it may not.

How "winnings" are measured is itself unsettled. OddsFile treats each market as a session; a different session definition produces a different gross figure.

Other income treatment

Report the net result on Schedule 1 line 8z. A negative number generally isn't deductible there, so you report $0 and the loss provides no benefit.

Side by side

The near-break-even trap in 2026

The 90% rule bites hardest when you roughly break even. Change the example to $18,000 of winning markets and $19,000 of losing markets (net −$1,000):

• 90% × $19,000 = $17,100 deductible
• Taxable: $18,000 − $17,100 = $900, even though you lost $1,000

The full mechanics are in the 2026 gambling loss 90% limit. A bill to restore the 100% deduction (H.R. 10357) passed the House Ways and Means Committee on September 16, 2026, but it is not law as of this writing.

What you need to claim any loss

Whatever treatment applies, you need records that support it:

• Kalshi's annual P&L statement from Account, then Tax Info (FIFO, net of fees and rebates)
• A trade-level export of fills and settlements
• Any 1099-INT, 1099-MISC, 1099-B or 1099-DA Kalshi issued (see Kalshi taxes and the 1099)
• For gambling treatment, a per-session record of wins and losses; the IRS expects gamblers to keep a log (Topic 419)

If your forms and your own numbers disagree, start with why Kalshi's 1099 doesn't match.

OddsFile computes your Kalshi result under all four treatments side by side, including the 90% limit, and exports a Form 8949 CSV and an audit trail. It doesn't pick a treatment for you. Run the free OddsFile check on a public Polymarket or Hyperliquid address to see the comparison; Kalshi connects with a read-only API key in the app.

FAQ

Can Kalshi losses offset stock gains?

Only if event contracts are treated as capital assets (or Section 1256 contracts). Under gambling or other-income treatment, they can't.

Are Kalshi losses gambling losses?

Some preparers treat them that way, especially for sports contracts. The IRS has not said so. Courts are split on whether sports contracts are swaps or gambling for regulatory purposes, and those rulings don't decide federal income tax.

Do I have to itemize to deduct Kalshi losses?

Only under gambling treatment. Capital and Section 1256 losses are deducted on Schedule D or Form 6781 whether or not you itemize.

Can I carry Kalshi losses forward?

Capital and Section 1256 losses can carry forward. Gambling losses that exceed winnings cannot.

Do I pay taxes on Kalshi if I lost money overall?

Under capital treatment, no. Under gambling treatment without itemizing, you can owe tax on gross winnings despite a net loss.