Prediction Market Tax Calculator: Estimate Your Tax Under Each Treatment

To estimate your prediction market taxes, you need three numbers per market (cost, proceeds and fees), a total of winning markets and a total of losing markets, and your marginal tax rates. You then run those figures through each of the four treatments people use for event contracts: other income, capital gains, Section 1256, and gambling. The IRS hasn't said which treatment is correct, so a good calculator shows all four side by side and doesn't pick one for you.

OddsFile is software, not tax advice. The IRS has not issued guidance on how prediction-market contracts are taxed. This page shows how the estimates are computed; a tax professional can tell you which treatment fits your situation.

The inputs you need

The most common mistake is missing settlements. Polymarket losing positions are usually never redeemed, so a wallet looks profitable until those positions are booked at zero (see unredeemed losing positions). Kalshi's annual P&L statement is a single net figure computed FIFO, which can't be split into winning and losing markets without the underlying fills (see Kalshi 1099 doesn't match).

Step by step

1. Match lots. Pair each sale or settlement with the purchase it closes, using FIFO, HIFO or specific identification. Allocate fees: buy fees go into basis, sell fees reduce proceeds.
2. Compute per-market P&L. Add up every closed lot and any income in each market.
3. Split winners and losers. Total winnings is the sum of the markets that ended positive. Total losses is the sum of the markets that ended negative.
4. Apply each treatment using the formulas below.
5. Compare, then talk to a professional. The cheapest number isn't automatically a position you can defend.

The four formulas

These are simplified federal estimates. They are not a return and they ignore state tax, NIIT and phase-outs.

• Other income (Schedule 1, line 8z): tax = max(net, 0) × ordinary rate. A net loss gives no deduction in this simplified model.
• Capital (Form 8949 / Schedule D): split short-term and long-term by holding period, then net them. Gains are taxed at the ordinary rate (short-term) or the long-term rate. A net loss offsets up to $3,000 of ordinary income per year (IRC §1211(b)), and the rest carries forward.
• Section 1256 (Form 6781): tax = 60% × net × long-term rate + 40% × net × ordinary rate. A loss is limited to $3,000 against ordinary income, with an optional carryback against prior 1256 gains (§1256, §1212(c)). Whether event contracts qualify at all is contested. See Section 1256 and prediction markets.
• Gambling (2026 rules): all winnings are income (Schedule 1, line 8b). If you itemize, you deduct the lesser of 90% of losses and your winnings on Schedule A (§165(d), IRS Topic 419). If you take the standard deduction, losses give you nothing. For 2025, the cap is 100% of losses instead of 90%. See the 90% limit.

Worked example: a profitable year

A trader's 2026 Polymarket and Kalshi activity, after fees:

• Winning markets total $18,000.
• Losing markets total $12,000.
• Net profit is $6,000. All positions were held less than a year.

Assumed rates: 24% ordinary and 15% long-term. Assume the trader itemizes for the gambling line.

The gambling line is the trap. Even for an itemizer, the 90% limit taxes $1,200 more than the trader actually made: $7,200 taxable against a $6,000 profit. Reporting $18,000 of winnings also raises AGI, which can affect other AGI-based items.

Worked example: a losing year

Same trader, different year: winners total $8,000 and losers total $14,000, for a net loss of $6,000.

This is why the same raw data can produce very different numbers, and why a calculator that shows only one treatment can mislead you. For the reasoning behind each line, read gambling vs capital gains for event contracts and are prediction market winnings taxable?.

Platform-specific inputs

• Polymarket: each trade spends or receives USDC, which is a crypto disposal in its own right, usually with near-zero gain. Fees are embedded in fills. See Polymarket fees. No 1099 is issued by the international exchange. See Polymarket taxes.
• Kalshi: you get a FIFO P&L statement that includes fees, plus 1099s for interest, rewards and crypto transfers above thresholds. See Kalshi taxes and the 1099.
• Hyperliquid: perps, spot and funding share one margin account. Funding treatment is unsettled, and Section 1256 isn't available because Hyperliquid isn't a qualified board or exchange. See Hyperliquid taxes.

Pitfalls that skew estimates

• Unredeemed losers left open, which inflates profit.
• Double-counting a redemption and a sale of the same shares.
• Wallet transfers counted as income. Moving USDC between your own wallets isn't a taxable event. See multiple wallets.
• Ignoring fees. On some Polymarket categories, taker fees materially change the net.
• Using the wrong year's gambling rule. 2025 uses 100% of losses; 2026 uses 90%.
• Applying the 1256 year-end mark without year-end prices for open positions.

FAQ

Is there a free Polymarket tax calculator?

Yes. The OddsFile check is free for public Polymarket and Hyperliquid addresses, with no signup. It shows net P&L and the estimate under each treatment.

Can a Kalshi tax calculator use my P&L statement?

The statement gives one net FIFO number. It's enough for the other-income and capital estimates, but not for the gambling estimate, which needs winning and losing markets separately. Importing your fills (with a read-only API key in the paid app) fixes that.

Which treatment will the calculator recommend?

None. OddsFile shows the outcome of each treatment with notes on what it requires. Choosing one is a decision for you and a tax professional.

Are the estimates exact?

No. They apply flat assumed rates to the net figures. Your actual liability depends on your whole return, brackets, state tax and other items.

Does the calculator handle the 2026 90% gambling-loss rule?

Yes. For tax year 2026 onward, the gambling estimate uses 90% of losses, capped at winnings. For 2025, it uses 100%.

Run your own numbers

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under all four treatments in under a minute. Paid plans add Kalshi import, Form 8949 CSV, a TurboTax-ready file and an audit trail for your accountant.