Can Polymarket or Kalshi Gains Be Long-Term Capital Gains?

Yes, potentially. If you treat contracts as capital assets and hold one for more than a year before you sell it or it settles, the gain can qualify for 0%, 15% or 20% long-term rates instead of ordinary rates. That depends on capital treatment holding up, which the IRS hasn't confirmed, and on the settlement counting as a sale or exchange. Very few positions get there, because most markets resolve within months.

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 holding period rule

Section 1222 splits capital gains by whether the asset was held for more than one year. IRS Topic 409 says the same: more than a year is long-term, one year or less is short-term.

Exactly one year is still short-term. Generally, count from the day after you acquired the asset through the day you disposed of it. A share bought on March 10, 2026 needs to be held until at least March 11, 2027.

For Polymarket, the IRS digital asset rules use the same split: one year or less is short-term and longer is long-term.

What long-term is worth in 2026

From Rev. Proc. 2025-32:

The saving is your ordinary bracket minus the long-term rate. For a filer in the 24% bracket at a 15% long-term rate, it's 9 points, or $900 on a $10,000 gain. At 37% and 20%, it's 17 points.

Which markets could get there

Most sports, weather, data release and politics contracts resolve quickly. Candidates that run longer include:

• A presidential election market bought years early. Polymarket's holding rewards list includes 2028 markets.
• Long-dated crypto price or economic markets.
• A market bought just over a year before it resolves.

Worked example

You buy 20,000 YES at $0.25, or $5,000, in July 2026, on a market that resolves YES in November 2028. You redeem for $20,000.

Long-dated markets also have a real time cost. Money sits for over two years, and a holding reward, if paid, is ordinary income each year.

The open questions

Is it a capital asset at all? Section 1221 covers property broadly, with exceptions. Many practitioners use it for event contracts. The IRS could say they're wagers instead, which has no long-term rate.

Does settlement count as a sale or exchange? Capital gain treatment needs a sale or exchange, or a rule that treats an event as one. A sale before resolution is clearly a sale. Settlement for $1 or $0 is less clear. Section 1234A treats gain or loss from the termination of a right with respect to a capital asset as capital, but whether it reaches outcome shares isn't settled. This matters more for long-term positions, since a good result may depend on it. Selling shortly before resolution at, say, $0.99 gives a cleaner disposal, at the cost of a cent per share, though nobody can say that's needed.

Are losing positions long-term too? A long-held loser under capital treatment is a long-term loss. It nets against long-term gains first, and then against short-term gains. There's no benefit to holding a loser past one year, and you may prefer a short-term loss.

Does a split or conversion reset the clock? If you hold a position through a split, merge or conversion, the holding period could be affected. No rule addresses it.

Section 1256 would be different

If Section 1256 applied, 60% of a gain would be long-term no matter how long you held the contract. But that's a contested claim, as our Section 1256 guide explains. You can't combine it with holding-period treatment for the same contract.

Lots and holding periods

If you added to a position over time, each purchase has its own holding period. A partial sale could be part short-term, part long-term. Under FIFO, oldest shares go first, which helps here. With specific identification, you can choose the older lot, if you identify it no later than the sale.

Stablecoin collateral is a separate asset with its own period, so the date of your deposit doesn't matter. The holding period for shares starts when you buy the shares.

Reporting

• Report on Form 8949 Part II, then Schedule D.
• For digital assets with no 1099-DA, use box L, per the Form 8949 instructions.
• Column (a) describes the position. Columns (b) and (c) give dates acquired and sold.
• Keep the purchase record for as long as you hold the position and beyond. See how long to keep records.

For a long hold, save the record when you buy. It's easy to lose track of a two-year-old fill.

Is it worth planning around?

Sometimes. If a position nears the one-year mark with a big gain, waiting a few weeks may be worth it, so long as you're comfortable with the risk of the price moving. A 9-point saving isn't worth much if the price falls 20% while you wait. It's rarely a reason to enter a trade.

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment, no signup. For your bracket, see what tax rate you pay.

FAQ

How long do I have to hold for long-term rates?

More than one year.

Does Kalshi's statement separate long-term gains?

Its page describes a FIFO P&L and doesn't mention holding periods. You'd need your own fill-level records.

If I use gambling treatment, can I get long-term rates?

No. Gambling income is taxed at ordinary rates.

Do long-term gains avoid the NIIT?

No. The NIIT applies to net gains above the income threshold, regardless of holding period.