Does the Wash Sale Rule Apply to Prediction Markets? Kalshi and Polymarket Explained

Under current law, the wash sale rule probably doesn't apply to Kalshi or Polymarket contracts, because Section 1091 covers only stock, securities and contracts or options on them. But the IRS has never said so for event contracts, so that's a reading of the statute, not a ruling. A pending House bill would extend wash sales to traded digital assets, and as introduced it would reach sales after September 14, 2026. It isn't law yet.

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.

What the rule says

Section 1091 disallows a loss on a sale of "stock or securities" if you acquire substantially identical stock or securities within a window running from 30 days before the sale to 30 days after it. The statute says the term "stock or securities" includes contracts or options to acquire or sell stock or securities. Publication 550 restates the rule in the same terms.

A disallowed loss isn't gone. It's generally added to the basis of the replacement position, so it is deferred.

Why event contracts probably fall outside it

The last row deserves caution. A contract that pays $1 if a stock closes above a price doesn't deliver stock, but the closer the economics are to an option on a stock, the less comfortable the "not a security" answer becomes. No authority addresses it.

The other open point is that the treatment itself is undecided. If event contracts were ever held to be securities, wash sales could follow. Nothing says that today.

How it depends on your treatment

The bill to watch

H.R. 10357, the Digital Asset Tax Certainty Act, was introduced on September 14, 2026 and approved by the Ways and Means Committee on September 16. As introduced:

• Section 301 replaces "stock or securities" with "specified assets," which includes any traded digital asset other than a qualified US dollar stablecoin.
• A traded digital asset is broadly a fungible digital asset with quotations readily available on an exchange, and not a tokenized asset.
• It applies to dispositions after the date of introduction.

Three things follow, all conditional:

1. Polymarket outcome tokens could be covered. They're on-chain and quoted on an order book. Whether that order book counts as an "exchange" would need rules or interpretation. The text doesn't mention prediction markets.
2. Kalshi contracts wouldn't obviously be covered, since they aren't digital assets.
3. It could look backward. A November 2026 sale followed by a repurchase might be caught if the bill became law with that effective date. Forvis Mazars flags the same concern for dispositions already made this year.

Committee text may differ from the introduced version, the bill hasn't passed the House or Senate, and effective dates often change. As of October 31, 2026, we found no report of a floor vote. Check congress.gov before filing.

What "substantially identical" could mean here

If wash sales ever apply, you'd need to know which positions match. No rule exists for outcome tokens. Reasonable guesses:

• Same outcome, same market: selling YES at a loss and rebuying YES is the obvious case.
• Same market, opposite side: buying NO is economically different, so likely not identical.
• Different venue: a Kalshi contract and a Polymarket token on the same event differ in legal form.
• Different market, same theme: "Fed cuts in December" versus "Fed cuts by January" are different contracts.

These are reasoned opinions. Nothing official exists.

Even without Section 1091, losses must be real

Don't read "no wash sale" as "free loss." Treas. Reg. §1.165-1(b) says only a bona fide loss is allowable and that "substance and not mere form" governs. Selling at a loss and rebuying seconds later to create a deduction, with no real change in your position, is exposed to that argument. Leaving a real gap, or accepting real market risk between the trades, puts you in a better position, though there's no safe number of hours.

Worked example

On December 18 you sell 5,000 YES at $0.20, bought at $0.50. That's a $1,500 loss. On December 23 you rebuy 5,000 YES at $0.22.

If the position closes in 2027, you get the same total result either way. The difference is the year. If you're relying on the loss for 2026 and the law changes, your 2026 return could change.

What to do

• Record each sale, each rebuy and the time between them.
• If you use software, ask whether it applies wash sale adjustments to these assets. Kalshi's statements use FIFO, and its page doesn't describe wash sale adjustments.
• If you plan to harvest losses before year end, avoid a quick rebuy into the same position.
• Revisit this before you file, in case the bill passes.

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

FAQ

Does the wash sale rule apply to crypto?

Not under the current text, which covers stock and securities, and the IRS treats digital assets as property. H.R. 10357 would change that if enacted.

Do I need to adjust my Kalshi P&L for wash sales?

Probably not, but there's no ruling. If your preparer treats a particular contract as a security, the answer would change for that contract.

Can I sell at a loss and rebuy on December 31?

Under current law, Section 1091 likely doesn't block it, but the loss has to be real, and the pending bill could change the result.

Do wash sales matter if I use gambling treatment?

No. Gambling treatment has its own limits, and those are often worse.