Gambling, Capital or 60/40? Where the Tax Experts Actually Land in 2026

The experts don’t agree, but they are no longer evenly split. Over 2026 the serious published analysis has drifted in one direction: away from Section 1256 for event contracts in general, and toward gambling treatment for sports contracts in particular. Here is who said what, in their own words where we could read them, and what it means for the year you are about to file.

The scoreboard

The case for gambling

The Tax Law Center paper is the most thorough piece yet, and it is the one to read if you trade sports. Its authors apply the plain meaning of “wagering” and decades of cases in which courts looked past the label to the substance, and conclude that sports event contracts appear to be wagers (we quoted the key passage in our CFTC breakdown). They point out that gamblers have argued their bets were “investing” before, and that “these arguments have failed when tested in court.” They also take on the Section 1256 and option theories directly and reject both.

Mirit Eyal (University of Alabama) and Jay Soled (Rutgers) go further in the George Washington Law Review. As InGame summarized the paper, they argue that “the vast majority of trades on prediction markets — sports or otherwise — should be treated as gambling.” We have not been able to read the paper itself, so take that as their position as reported.

The case against Section 1256

Camuso and Mukherjee argued in June that Section 1256 is not available for event contracts under the current statute: the listed categories were built for price-based instruments, Kalshi’s contracts lack the daily mark-to-market a regulated futures contract needs, and the CFTC calls them swaps, which triggers the swap exclusion. They also warned preparers directly. Anyone asserting Section 1256 “without a documented statutory analysis and a Form 8275, ‘Disclosure Statement,’ [is] exposed to preparer penalties.”

Robert Green of Green Trader Tax lands in the same place and puts the core point well: “Regulatory classification does not control tax treatment.” Seward & Kissel, a large law firm, called Section 1256 treatment “unlikely,” because event contracts “do not fit neatly into any of these buckets.”

Then in October the CFTC proposed defining event contracts as swaps, which is exactly the fact the swap-exclusion argument rests on.

The case for Section 1256

The strongest professional voice on this side is White & Case, a major law firm whose client alert argued that a contract traded on a CFTC-regulated exchange will be hard for the IRS to treat as anything other than a Section 1256 contract. The logic is simple: Congress tied Section 1256 to trading on a qualified exchange, and Kalshi is one. It is a real, credentialed view, and it is the reason we still show Section 1256 in every report rather than dropping it.

The middle: capital gains, and “we don’t know”

KPMG has published an analysis that works through the possible characterizations, including treating a contract as an option or as a new kind of capital asset, without a verdict we could find. The Bipartisan Policy Center sets out three categories (gambling, Section 1256 and capital gains) and makes a point worth sitting with: if the courts end up deciding these markets are gambling for regulatory purposes, that would also go a long way to settling the tax treatment.

Capital gains is a common default when someone has to pick: it treats a contract like any other investment, allows losses against other gains, and does not depend on the swap fight.

What this means for your return

That is why WagerMints prices all four methods instead of picking one. The experts are still arguing, and the cheapest number is not always the safest. The full guide has a worked example of what each one costs.