Kalshi Tax Guide 2026: 1099, Section 1256, and How to Report

What Kalshi reports to the IRS

Kalshi is a CFTC Designated Contract Market (DCM), first granted DCM status in 2020 and with an expanded event-contract designation in 2021. That regulatory status determines how Kalshi reports to the IRS: Kalshi is treated as a broker under Internal Revenue Code §6045, and has the same reporting obligations as any other US futures broker. Every US trader with taxable activity on Kalshi receives an annual information return summarizing aggregate trading profit or loss for the tax year.

Kalshi collects your US tax information during account opening — name, address, Social Security number or ITIN, and a completed Form W-9 — and uses it to generate the 1099 at year end. If the IRS rejects a return due to mismatched identity information, Kalshi may implement backup withholding on future payouts under §3406 until the issue is resolved.

Kalshi is not a casino or sportsbook. Its reporting sits under the broker/dealer regime, not the W-2G gambling regime. This matters for three reasons:

• Capital-gains or §1256 treatment is generally more favorable than gambling-winnings treatment for profitable traders.
• Losses are usable against gains under broker/dealer rules — gambling losses are only deductible as an itemized deduction up to the amount of winnings, and are lost entirely if you take the standard deduction.
• Net losses can carry forward (and, in the §1256 case, carry back) rather than being trapped in the year realized.

Which 1099 form does Kalshi send?

Kalshi primarily sends Form 1099-B. Form 1099-B is the broker reporting form used for proceeds from broker and barter exchange transactions, including the aggregate profit or loss on Section 1256 contracts in Box 11 of the form.

Some traders may also receive Form 1099-MISC if Kalshi has paid them $600 or more in non-trading income — promotional credits, sign-up bonuses, referral rewards, or contest prizes — during the tax year. The $600 threshold is set by §6041. Below $600, Kalshi may still track the income internally but is not required to issue a form; you are still legally responsible for reporting it.

Section 1256 and the 60/40 rule

Section 1256 of the Internal Revenue Code governs "regulated futures contracts," non-equity options, and certain other exchange-traded instruments. Section 1256 contracts enjoy two special tax rules that are extremely favorable for active traders:

• The 60/40 rule. Regardless of how long you held the contract — one minute or one year — 60% of net gain or loss is treated as long-term capital gain or loss, and 40% as short-term. For a top-bracket earner, that blends to roughly a 26.8% effective rate on trading gains, versus up to 37% if every gain were treated as short-term.
• Mark-to-market at year end. Any open §1256 position on December 31 is treated as sold at fair market value on that date. The gain or loss is recognized in the current year, and the position's basis is reset for the next year.

Do Kalshi contracts qualify?

Kalshi has publicly taken the position that its event contracts qualify as §1256 regulated futures contracts, and it issues 1099-B forms on that basis. The argument rests on two pillars:

1. Kalshi is a qualified board or exchange (specifically, a CFTC Designated Contract Market).
2. The contracts are cash-settled, margined under the DCM's risk model, and subject to the mark-to-market rules for regulated futures.

The IRS has not issued a published ruling confirming this treatment for event contracts specifically. A tax professional may conclude that your contracts are better characterized as ordinary capital assets under §1234A instead. The most defensible approach is to follow the treatment reported on the Kalshi 1099-B unless you have a written opinion from a CPA or tax attorney supporting a different position.

60/40 math — a worked example

Suppose you realize $25,000 in net Kalshi gains in 2026, all from trades held less than 30 days. You are in the 35% federal marginal bracket and live in a no-income-tax state.

• Without §1256: $25,000 × 35% = $8,750 federal tax.
• With §1256: 60% × $25,000 × 20% (long-term rate at this income level) + 40% × $25,000 × 35% = $3,000 + $3,500 = $6,500. A $2,250 savings — a 26% reduction — purely from the favorable character treatment.

Net Investment Income Tax (3.8%) may add an extra layer if your modified AGI exceeds the $200K/$250K threshold .

Short-term vs long-term treatment

If your Kalshi contracts are not §1256 contracts (either because the IRS ultimately rules otherwise or because you elect out, which is not generally available for §1256 contracts) they default to ordinary capital gain/loss rules under §1222:

• Short-term capital gain / loss — contract held one year or less. Taxed at ordinary income rates (10%–37% for 2026).
• Long-term capital gain / loss — contract held more than one year. Taxed at preferential rates: 0%, 15%, or 20% depending on taxable income.

Most Kalshi contracts settle in days or weeks. Almost all non-§1256 activity on Kalshi would therefore be short-term. That is the other reason the §1256 60/40 split matters: without it, nearly every profitable Kalshi trade would be taxed as ordinary income.

Loss deductions and carrybacks

Not every year will be profitable. Here is how Kalshi losses work depending on treatment:

Section 1256 net losses

Net §1256 losses enjoy a unique carryback election under IRC §1256(c)(3). You may elect to carry the net §1256 loss back up to three tax years to offset prior §1256 gains, filing IRS Form 1045 (Application for Tentative Refund). Any unused loss then carries forward under normal capital-loss rules.

Ordinary capital losses

Under the general capital-loss rules, net capital losses offset net capital gains each year. If your net loss across all capital assets (not just Kalshi) exceeds your net gains, up to $3,000 per year ($1,500 if married filing separately) can be deducted against ordinary income on Form 1040, line 7. Any remainder carries forward indefinitely until used.

Wash sale rule

The wash sale rule under §1091 disallows a loss where you buy a substantially identical security within 30 days before or after the loss sale. §1256 contracts are generally not subject to the wash sale rule because of the mark-to-market regime. Ordinary-treatment event contracts could arguably fall within it, but whether a later Kalshi contract on a different resolution date counts as "substantially identical" is not settled. Conservative practice: avoid rapid rebuys of the same contract series across a realized-loss trade.

Filing: Form 6781, Form 8949, Schedule 1

Here is the mechanical flow of numbers on your 2026 return when Kalshi has reported §1256 activity:

1. Download the 1099-B from Kalshi. Box 11 shows "aggregate profit or loss on contracts" — that is your net §1256 number.
2. Enter on Form 6781, Part I. Line 1 captures the net §1256 gain/loss. Line 5 applies the 60/40 split: 60% to line 8 (long-term) and 40% to line 9 (short-term).
3. Carry totals to Schedule D. Line 8 of Form 6781 flows to Schedule D, line 11 (long-term). Line 9 flows to Schedule D, line 4 (short-term).
4. Report Kalshi 1099-MISC income (if any) on Schedule 1, line 8. Use the "Other income" write-in for "Prediction-market promotional income, Kalshi 1099-MISC." This flows to Form 1040, line 8.
5. If you received a 1099-INT for interest on cash balances, report on Schedule B and flow to Form 1040, line 2b.

If Kalshi instead reports ordinary capital gains (not §1256), skip Form 6781 and instead list each contract — or use a summary attached to the return — on Form 8949. Form 8949 totals then flow to Schedule D in the normal way.

Tax software (TurboTax Premier, H&R Block, FreeTaxUSA) generally imports the Kalshi 1099-B directly via broker import or manual entry. The §1256 60/40 split is handled automatically once you mark the 1099-B as reporting §1256 contracts.

State-level notes

Most states tax capital gains as part of state ordinary income, typically without a preferential long-term rate. That means even if the federal 60/40 rule gives you favorable federal treatment, your state may tax the full gain at its flat or progressive rate. A few state-level observations:

• No state income tax: Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Alaska, and Tennessee impose no individual state income tax on Kalshi gains.
• New Hampshire: Taxes interest and dividends (phasing out) but not capital gains or §1256 contract income — Kalshi activity is effectively federal-only here.
• California and New York: Tax capital gains as ordinary income at marginal rates up to ~13.3% (CA) and ~10.9% (NY). There is no CA or NY-specific mark-to-market rule for §1256 contracts, but the federal Form 6781 numbers flow through.
• Massachusetts: A separate short-term capital gains bracket (12%) applies to gains on assets held one year or less. Because the federal §1256 60/40 split overrides the federal holding period, whether Massachusetts honors the same federal character has historically been contested — confirm with a Massachusetts CPA.
• Pennsylvania: Does not recognize §1256 treatment; PA taxes all gains at a flat 3.07% rate with no preferential long-term treatment.

How to minimize your compliance burden

1. Let Kalshi's 1099 do the work. Unlike Polymarket or PredictIt, you don\'t need to construct your own gain/loss schedule — Box 11 of the 1099-B gives you a single aggregate number.
2. Plan year-end open positions. Under mark-to-market, every open December 31 position creates a recognized gain or loss. If you are sitting on large unrealized gains on a low-income year, that year-end recognition may actually be desirable. If you are at a marginal-rate cliff, consider closing or sizing down before year end.
3. Use the §1256 loss carryback electively. If 2026 is a net loss year and you had §1256 gains in 2023–2025, file Form 1045 to claim a refund against those prior gains.
4. Keep the annual Kalshi account statement. The 1099-B is the IRS record, but the platform-level annual statement is the best evidence if the 1099 is ever corrected or challenged.
5. Hire a CPA who knows §1256. Many general practitioners have never filed Form 6781. If you have more than ~$5,000 of annual Kalshi activity, the CPA fee for someone who understands regulated futures will pay for itself in correct treatment.

The Kalshi tax advantage, summarized

Kalshi is the only major US prediction market with (a) an automated 1099 and (b) a defensible claim to Section 1256 treatment. That combination removes two of the largest pain points of prediction-market trading: constructing your own cost-basis records, and being pinned to ordinary income rates on short-hold contracts. Taken together, the 1099-B delivered by mid-February plus the 60/40 rule often mean that Kalshi's overall tax economics are meaningfully better than those of Polymarket, PredictIt, or offshore alternatives — before you even account for fee structure.