Can You Carry Back a Kalshi Loss Under Section 1256?

A net Section 1256 loss can be carried back three years, but only against past Section 1256 gains. If you filed earlier Kalshi gains on Form 8949, or had no futures or similar contracts in those years, there is usually nothing to carry back against. Section 1256 itself is disputed for event contracts, so talk to a preparer before you ask the IRS for a refund on it.

Who can use the carryback?

You need all of these:

• You’re an individual. Corporations, estates and trusts can’t make this election.
• You report the loss year under Section 1256 on Form 6781.
• The year has a net Section 1256 contracts loss, as defined below.
• One of the three earlier years shows a net Section 1256 gain.

How much can you carry back?

The Form 6781 instructions set two limits:

1. For the loss year: the smaller of (a) your Section 1256 losses minus your Section 1256 gains and $3,000 ($1,500 if married filing separately), or (b) your capital loss carryover to the next year.
2. For each earlier year: the smaller of that year’s gain from Section 1256 contracts alone, or its capital gain on Schedule D, line 16. The carryback also can’t create or increase a net operating loss.

What does a carryback look like?

Suppose 2026 has a $20,000 Section 1256 loss and nothing else on Schedule D. Up to $3,000 can offset other income in 2026, which leaves $17,000 eligible to carry back. The figures are made up, and assume each year’s Schedule D gain is at least as large as its Section 1256 gain.

The last $4,000 carries forward. In each earlier year, 60% of the amount used counts as long-term loss and 40% as short-term. So the $5,000 used in 2023 is $3,000 long-term and $2,000 short-term. Your refund depends on your tax rates in that year.

How do you file it?

1. File the loss-year return with box D checked on Form 6781 and the carryback amount on line 6.
2. For each earlier year, prepare an amended Form 6781. On line 1, enter “Net section 1256 contracts loss carried back from” and the tax year in column (a), and the amount in column (b). Prepare an amended Schedule D too.
3. File either Form 1045 or an amended return. With Form 1045, attach the loss year’s Form 6781 and Schedule D, plus the amended forms for each carryback year.

Form 1045 is generally due within 1 year after the end of the loss year, and it can’t be filed before the loss-year return. Don’t put it in the same envelope as that return. Check the deadline for an amended return with your preparer, because it follows different rules.

What should you weigh first?

• The position is disputed. Camuso and Mukherjee conclude Section 1256 isn’t available for event contracts, and White & Case argues for it. A carryback asks for money back based on that position. Both sides.
• Disclosure. One published analysis warns of a Form 8275 disclosure for this position. The IRS says carryback items are disclosed for the year they originate. How Form 8275 works.
• Year-end marks. Section 1256 also marks open positions on December 31. What that does to your gain or loss.
• Consistency. If you reported Kalshi gains under capital gains in earlier years, changing them to create a Section 1256 gain means amending those years. Take that to a preparer.

How does this fit with your WagerMints forms?

WagerMints shows your year under all four methods, including what capital loss rules do with a loss. Our Form 6781 enters -0- on line 6, because the carryback is your election. If you and your preparer choose it, check box D and change line 6.

Questions about the Section 1256 carryback

General information about US federal tax, not tax advice.