Betting on the Midterms? How Election Contracts on Kalshi and Polymarket Are Taxed

Election contracts are taxed like every other event contract. The IRS hasn’t said how, so you pick one of four methods, and you owe in the year a position is sold or settles, not on Election Day. That last part matters for the November 3 midterms: a market that settles in 2027 goes on your 2027 return, unless you report under Section 1256.

Why you can trade them

Kalshi sued the CFTC in 2023 for the right to list contracts on which party controls Congress, won in federal court in 2024, and the case closed in May 2025 after the CFTC dropped its appeal (the docket). Election markets have run on Kalshi since, and polymarket.com lists them too.

How they’re taxed

Nothing in the tax code singles out election contracts. They get the same four possible treatments as a contract on rain, rates or a football game:

• Capital gains: each sale or settlement on Form 8949, usually short-term, so taxed at your ordinary rate.
• Ordinary income: one net figure on Schedule 1.
• Gambling: winnings in full, losses only if you itemize, and only 90% of them from 2026.
• Section 1256 (60/40): 60% of the gain at long-term rates. It can only be argued for contracts on a CFTC-regulated exchange such as Kalshi or Polymarket US, never polymarket.com.

Most of the published argument that event contracts are gambling is about sports contracts. Nobody with authority has ruled on election contracts either way. Where the experts land.

Which year they count in

You’re taxed when you sell a contract or when it settles. Each market’s rules say when it settles, and control-of-Congress markets settle only once control is decided. If close races drag on, that can be weeks after November 3.

• Sold or settled in 2026: it’s on your 2026 return.
• Settles in 2027: under three of the methods, it’s on your 2027 return.
• Under Section 1256: a position still open on December 31 is treated as sold at its year-end value, so the gain or loss up to that date counts in 2026 anyway.

If your side loses

A losing election contract is worth what your method allows. Under capital gains it offsets gains and up to $3,000 of other income a year. Under gambling it only counts if you itemize, against gambling winnings, at 90%. How losses work, method by method.

State rules

Some states treat election contracts the way they treat sports contracts. Arizona’s March 2026 criminal charges against Kalshi include election wagering, though a federal court has blocked that prosecution. Nevada’s court orders cover election contracts, and the Ninth Circuit sent the election question in Kalshi’s federal case back to the district court. Your state also taxes the profit on top of federal tax. Your state’s tax rules and legal status.

WagerMints prices your Kalshi or Polymarket year under all four methods, election contracts included. How prediction market trades are taxed.