Do You Owe Tax on Open Polymarket or Kalshi Positions at Year End?

Generally no. An open Polymarket or Kalshi position isn't taxed until you sell it or the market settles, even if it's sitting on a big paper gain on December 31. The cost you paid in 2026 for a contract that settles in 2027 goes in the 2027 result. The two exceptions are Section 1256 treatment and a Section 475 election, which both mark open positions to market at year end, and neither is confirmed for event contracts.

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 the sources behind them; a tax professional can tell you which position fits your situation.

The general rule

US income tax taxes realized gains. Under Section 1001, gain or loss comes from the sale or other disposition of property. A price change alone isn't a disposition. The loss rules work the same way: Treas. Reg. §1.165-1(d) needs a closed and completed transaction, fixed by identifiable events.

By treatment

Section 1256 is contested for event contracts, and it requires prices for every open position at year end. If you take this position, a large gain could be taxed in 2026 on a contract that goes to zero in 2027. The later loss then adjusts the following year, but you've paid tax first.

Timing edge cases

A market that resolved in December but wasn't redeemed. The position isn't really open. The outcome is fixed, so count it in the year of resolution. That applies to winners and losers. See unredeemed losing positions.

An event in December that settles in January. A game on December 31 might settle on January 1. A proposal could be disputed for days. Your record should show when the market actually resolved. A market's end date, its resolution date and its redemption date can differ. Which date is right when they straddle a year end is unsettled; pick a sensible rule and apply it every year.

Selling on the last night. On-chain timestamps are in UTC. A trade late on December 31 in the US is January 1 in UTC. Kalshi's history may show times in your own zone or in another. For a large position, stay clear of the last hours of the year. Tax-loss harvesting has more on this.

A position spanning two years. Say you bought shares in both 2026 and 2027 and sell part of them in 2027. Your basis depends on your lot method. See cost basis methods.

Worked example

On November 3, 2026, you buy 10,000 YES at $0.30, a $3,000 cost. On December 31, the price is $0.70, a $4,000 paper gain. The market resolves YES on February 10, 2027.

If you close it on December 31 instead, you'd have a $4,000 gain in 2026 under capital treatment. Holding moves the whole gain to your 2027 return, due in April 2028.

Why Kalshi's statement and your balance disagree

Kalshi's P&L statement uses FIFO and summarizes trading activity. An open contract at year end isn't yet a realized result. This commonly explains why cash deposited, your current balance and the statement look unrelated. See why your Kalshi numbers don't match.

On Polymarket, wallet balances can look similar. Money you put into open positions has left your stablecoin balance but isn't a loss. Crypto tax tools that show it as a loss, or that treat resolved losers as open, will distort the year in either direction.

Interest and rewards on open positions

Even when a position isn't taxed, what it pays you might be. Kalshi's APY program counts cash and positions in the balance, and that interest is ordinary income when paid. Polymarket holding rewards paid on open positions are likely income when received.

Hyperliquid perps are similar in a way: funding payments arrive while a position is open, and their treatment is a separate question.

Does anything need to be reported for open positions?

Not on Form 8949. There's no disposal to report. But keep a year-end snapshot:

• Each open position, by market and outcome
• Quantity and cost basis
• The year-end price, if you might need Section 1256 figures
• Open lots, so next year's disposals can be matched

If your balance is large, an open position's value may also matter for Form 8938 thresholds.

Moving a gain into next year

Deferring is legal, and it's simple: hold through December 31, if you actually want the position. Don't do it only for tax. A $4,000 paper gain can vanish by February. Also weigh your likely rates in each year, and remember the tax isn't removed, only moved.

Don't try to create a loss this year while keeping a gain for next year by taking both sides in linked positions without advice. See straddles and buying both sides.

A year-end routine

1. On or near December 31, save positions and prices from each venue.
2. List markets that have ended but not yet resolved.
3. Note any disputes that might push resolution into January.
4. Save a copy with your tax file.

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment, including which positions are still open, no signup.

FAQ

Is money in an open position taxed when I buy?

No. Buying sets your basis. On Polymarket, paying with a stablecoin is technically a small disposal of that token, usually with about zero gain.

Do I report open positions on my return?

Not under capital, other-income or gambling treatment. You'd include them on Form 6781 only if you take the Section 1256 position.

What if a market I hold is voided?

Your cost is generally returned, which is close to a no-gain close. Check how the venue handled it and record it.

What if a position is worthless but hasn't resolved?

A low price alone isn't usually a completed event. Selling, if there's a buyer, creates one. See harvesting losses before year end.