Polymarket Unredeemed Losing Positions: How They Affect Your Taxes

Losing Polymarket positions are almost never redeemed, because there is nothing to collect. For taxes that matters: with no sale and no redemption on-chain, many tools never record the loss, so your gains look larger than they were. The economic loss happened when the market resolved against you, and your records should show it then, even though the shares are still sitting in your wallet.

OddsFile is software, not tax advice. The IRS has not issued guidance on how prediction-market contracts are taxed, and no guidance addresses worthless outcome shares specifically. This article explains the options and sources; a tax professional can tell you which position fits your situation.

Why losers stay unredeemed

When a Polymarket market resolves, each winning share can be redeemed for $1.00 of USDC and each losing share is worth $0. Redeeming a winner pays you, so people do it. Redeeming a loser pays nothing, so most people simply leave the shares where they are. They remain in your wallet indefinitely at a value of zero.

Polymarket's own data shows this. Its public positions endpoint lists resolved positions as "redeemable" with a current price of $0 for losers, and its activity feed has no row at all for the moment a loser became worthless. Redemptions that do happen often omit which token was redeemed, giving only the winning outcome index. See the Polymarket docs for the data APIs.

How naive tools overstate your gains

Most crypto tax software reconstructs P&L from transfers, trades and redemptions. If a position is never sold and never redeemed, the software sees a purchase and nothing else, so the cost just sits there as an open position.

Example for one year:

The tool reports a $400 gain on a year in which you lost $200. On real data the effect is large: on one live wallet OddsFile tested, settling never-redeemed losers changed the result from +$225.84 with 186 open positions to −$206.78 with 38 open (the 38 were genuinely live markets).

The reverse error matters too. If you treat every open position as lost, you will understate gains on markets that are still trading.

Finding them

1. Pull all positions for every wallet you used, including the Polymarket proxy wallet (multiple wallets).
2. Separate resolved markets from live ones. Resolved losers show a price of $0 and are flagged redeemable.
3. For each resolved loser, record cost basis (including fees, see Polymarket fees), quantity and the resolution date.

When did the loss happen?

There is no sale, so you need another date. The most defensible candidate is when the market resolved, because that is when the outcome became fixed and the shares became worthless. Treasury regulations for loss deductions require a loss to be "evidenced by closed and completed transactions" and "fixed by identifiable events" (Treas. Reg. §1.165-1(d)); a resolution is an identifiable event.

The date matters most around year end. A market whose end date is December 31, 2026 but which resolves on January 3, 2027 could plausibly fall in either year. OddsFile uses the market end date (end of day UTC) or, if trading continued, just after your last activity on the token, and flags borderline cases for review. A professional may prefer a different rule; whatever you use, apply it consistently.

How the loss is treated

This is where the law is thin.

• General loss rule. Section 165(a) allows a deduction for losses sustained during the year and not compensated; for individuals, §165(c)(2) covers losses in transactions entered into for profit.
• Worthless securities rule. Section 165(g) treats a worthless security as sold on the last day of the tax year, producing a capital loss. Its definition of security covers stock, stock rights and certain debt. Outcome shares almost certainly aren't securities in that sense, so §165(g) likely doesn't apply directly.
• Termination of a right. Section 1234A treats gain or loss from the expiration or termination of a right with respect to property that is a capital asset as capital. Whether it reaches outcome shares is not settled.

In practice the loss follows the treatment you use for the rest of your Polymarket activity:

See are Polymarket losses tax deductible for the effect of each.

Should you redeem them anyway?

Where the interface or contract allows it, redeeming a losing position for $0 creates an on-chain record dated when you do it, which can be tidy evidence. It does not change the economics, and the redemption date isn't necessarily the right tax date if the market resolved earlier. Selling a nearly worthless position before resolution, at a fraction of a cent, does create a clean sale, but only while there's still a buyer.

OddsFile finds resolved losers in your wallets, settles them at $0 on the resolution date, and shows the result under each treatment so nothing is silently left open. Run the free OddsFile check: paste a Polymarket address and see your 2026 P&L, no signup.

For everything else about Polymarket reporting, read Polymarket taxes: the complete guide.

FAQ

Do I have to redeem losing Polymarket shares to claim the loss?

Nothing in the tax law requires a redemption, but you need evidence of the loss and a defensible date. The market's resolution record is usually that evidence.

Why does my crypto tax software show a big Polymarket gain?

It is probably counting redeemed winners and ignoring unredeemed losers. Check how many "open" positions it shows for markets that have already resolved.

Which year does the loss belong to?

Usually the year the market resolved. For markets that end in one year and resolve in the next, the answer is unsettled; pick a rule with your preparer and apply it consistently.

Is it a capital loss or an ordinary loss?

It depends on the treatment you use for Polymarket overall and on unsettled questions about §1234A. Most capital-treatment filers report it as a capital loss with $0 proceeds.

Does this apply to Kalshi?

Less so. Kalshi settles losing contracts automatically and shows them in its P&L statement. See Kalshi taxes and the 1099.