Are Polymarket Losses Tax Deductible? What Happens If You Lost Overall

Polymarket losses can be tax deductible, but only under some treatments. If outcome shares are treated as capital assets (the most common practitioner view for crypto-settled shares), a net loss offsets capital gains and up to $3,000 of other income per year, with the rest carried forward. Treated as gambling, losses only offset winnings and only if you itemize, at 90% from 2026. Reported as other income, a net loss usually gives no deduction.

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.

First, make sure the loss is real and complete

Before asking whether a loss is deductible, check that your numbers include every losing position. On Polymarket this is the most common error, in both directions:

• Losing shares are usually never redeemed. There is nothing to claim, so no on-chain "sale" or "redeem" appears. Tools that only count trades and redemptions miss these losses entirely and overstate your profit. See unredeemed losing positions.
• Fees are part of cost. Taker fees on fee-bearing markets reduce your result. See Polymarket fees and taxes.
• Several wallets, one taxpayer. A loss in one wallet and a gain in another net together on your return. See multiple wallets.

In OddsFile testing on a live wallet, settling never-redeemed losers turned an apparent +$225.84 into an actual −$206.78. That is the difference between owing tax and having a loss.

The four treatments and what they do with a loss

Polymarket's international exchange is close-only for US users per its geoblock documentation; US users now trade on Polymarket US, a CFTC-designated contract market. The loss rules above apply either way; the 1256 argument is only conceivable for the regulated venue, and it is disputed there too (details).

Polymarket shares also sit on top of crypto. You buy them with USDC, which the IRS treats as property (Notice 2014-21). Spending USDC is technically a disposal, but at close to $1.00 the gain or loss is usually negligible. The economic loss is on the shares.

Worked example: a losing year

Assume a single filer, 2026, 24% ordinary bracket (an assumption):

• Winning markets: $7,500 profit
• Losing markets (including unredeemed losers settled at $0): $11,000 lost
• Fees: already included above
• Net: −$3,500

Capital treatment. Net capital loss $3,500. Deduct $3,000 this year (about $720 of tax saved at 24%) and carry $500 forward. If you also had $10,000 of crypto or stock gains, the full $3,500 would offset them first.

Gambling treatment, itemizing. Report $7,500 of winnings. Deductible losses: 90% × $11,000 = $9,900, capped at $7,500. Net taxable: $0. The remaining loss disappears.

Gambling treatment, not itemizing. You owe tax on $7,500 of winnings (about $1,800 at 24%) despite losing $3,500. The 2026 standard deduction is $16,100 for single filers, so many people with modest results won't itemize.

Other income. Net −$3,500, reported as $0. No deduction.

When a "small loss" still creates tax

Under gambling treatment from 2026, a near break-even year can produce taxable income. With $20,000 of winnings and $21,000 of losses, 90% of losses is $18,900, leaving $1,100 taxable even though you lost $1,000. The full mechanics are in the 2026 gambling loss 90% limit.

Records that support the deduction

Polymarket's international exchange has historically issued no 1099 (why), so the burden of proof is on you. Keep:

• Every wallet address you traded from, including the Polymarket proxy wallet
• A full activity export (trades, redemptions, rewards, splits and merges)
• Resolution dates and outcomes for markets you never redeemed
• Deposits and withdrawals of USDC, with the exchange or bridge records

For the full picture of how Polymarket results are reported, see Polymarket taxes: the complete guide.

OddsFile pulls your Polymarket activity from the public API, settles never-redeemed losers at resolution, includes fees, and shows the loss under each treatment side by side. Run the free OddsFile check: paste your Polymarket address and see your 2026 P&L, no signup.

FAQ

Can Polymarket losses offset my crypto gains?

Under capital treatment, yes; both are capital transactions netted on Schedule D. Under gambling or other-income treatment, no.

Can I deduct Polymarket losses if I don't itemize?

Under capital treatment, yes. Under gambling treatment, no; gambling losses are only an itemized deduction.

Do I have to report Polymarket if I lost money?

Report the activity the way your chosen treatment requires. Also note the digital asset question on Form 1040, which asks whether you disposed of digital assets during the year (IRS digital assets).

Is a loss on a market I never redeemed deductible?

Economically you lost the money at resolution. How and when a worthless position is recognized is not specifically addressed for these shares; see unredeemed losing positions.

Does the wash sale rule apply to Polymarket losses?

Section 1091 applies to stock or securities. Under current law it is not applied to crypto property, and Polymarket shares are generally not securities, but confirm with a professional if you repeatedly sell and rebuy the same outcome.