How are prediction markets taxed? The IRS has not yet issued guidance

As prediction markets grow in popularity, traders are faced with an important question: The Internal Revenue Service has not shared any details on how their winnings will be taxed.

The year is more than half over, but the IRS has yet to share any guidance on corporate tax management for predicting market wins and losses.

“I think it’s very confusing for users of speculation markets because they get a lot [conflicting] guidance,” said Ryan Schutz, former IRS special agent and founder of First There Tax.

Winnings from betting markets can fall into several categories, tax experts said: gambling income, capital gains or treatment under a Section 1256 contract.

President Donald Trump’s “One Big Beautiful Bill Act” has a provision that applies a 90% limit on gambling loss deductions. Previously, if someone won $100 and lost $100, they would not have to pay any tax. Under the new framework, however, a taxpayer will only be able to withdraw $90 and keep $10 of taxable winnings.

“Sports gambling is actually in the worst position for tax treatment right now,” said Nathan Goldman, an accounting professor at North Carolina State University.

Under capital gains treatment, taxpayers with losses that exceed gains can use up to $3,000 of realized losses to reduce ordinary income.

Finally, futures contracts can be considered Section 1256 contracts. In this case, 60% of the capital gains are taxed at the lower long-term rate, and 40% at the higher short-term rate. Long-term capital gains are taxed at 0%, 15% or 20%, while short-term gains are taxed as ordinary income, which can be as high as 37%. That 60/40 split is consistent regardless of how long the asset was held.

Those guidelines are more attractive to taxpayers than those who classify their income as gambling.

“For most people, a 1256 treatment or cash benefit would result in less tax money,” Schutz said.

In May, the prediction market platform Kalshi introduced perpetual futures, or “perps,” with no expiration dates. Because perps don’t follow the same structure as a traditional event contract, Schutz said different guidelines may apply.

“I really saw the argument of someone who says that contracts for events can have different clauses than permanent ones,” he said. “When I first found out about perpetals, they felt like a real financial contract because they don’t have a specific end date and that kind of tracks with the mechanics of 1256.”

Without guidance from the IRS, tax experts say it’s tricky to determine the tax treatment that might apply to speculative market contracts, such as which team will win Sunday’s World Cup final.

“Some contracts may look like sports betting, while others may resemble financial or economic forecasts,” said George Salis, chief economist and senior director of tax policy at Vertex. “That scope makes it difficult to create one simple tax framework that applies cleanly to every type of contract.”

Contracts for sports-related events continue to dominate the leading betting markets and face high scrutiny from states and critics, who say such contracts are similar to those offered by sports betting sites.

Although both Kalshi and Polymarket declined to comment on what role marketplace platforms could play in ensuring that their users better understand their tax obligations, both platforms. providing users with Form 1099 for reporting activity. Taxpayers still need to report their earnings even if they don’t receive a 1099.

Neither the IRS nor the Treasury Department responded to CNBC’s request for comment.

Speculation markets may generate tax revenue for states if their contracts are considered gambling.

“Healing [contracts] as gambling income is more profitable to [states]because that is a driver of money,” said Schutz.

After a 2018 Supreme Court decision, which gave states the power to regulate sports gambling, states like Oregon, New York and New Hampshire have implemented at least a 50% tax on online sports betting sites.

The Commodity Futures Trading Commission asserts its authority over the speculative markets, saying that the contracts for the platform events are organized as an exchange.

Unlike other states, North Carolina recognized the futures markets as operating under the CFTC. The government imposed a 6% tax on betting market operators and a 23% tax on sports betting sites. The move helps North Carolina avoid lawsuits over prediction market platforms, Goldman said.

“I think North Carolina is right to say, ‘Maybe if we go in with a lower number, we won’t have so much of a court battle over whether we’re allowed to put this up,'” Goldman said.

Many states are involved in legal proceedings with betting market platforms, arguing that they operate illegal sports betting activities. The CFTC has entered the fray, seeking to protect what it says is its exclusive jurisdiction over event contracts.

Earlier this month, a New York federal judge denied Kalshi’s request to stop New York from applying the state’s gambling laws to contracts for sports-related events.

The legislation also complicated the tax picture from a corporate perspective.

“When states come in and start making their own laws, we have these laws changing all over the place and that makes what Washington is doing very difficult,” Goldman said.

While there is no clear roadmap for how speculation markets are taxed, tax experts told CNBC they are eager for clarity.

“I would like to see some guidance from the IRS. I think that would be a definitive solution,” Schutz said. “I think the IRS may be reluctant to come out with guidance that conflicts with the CFTC’s position.”

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a small investment.