WagerMintsLosses
Do Wash Sales Apply to Kalshi and Polymarket?
The wash sale rule covers stock and securities. No IRS guidance says if that includes event contracts. What each tax method means for a sell-and-rebuy.
The WagerMints Team
Prediction-market tax research
October 31, 2026/5 min read
No rule says wash sales apply to Kalshi or Polymarket, and no rule says they don’t. Section 1091 covers “stock or securities,” and neither the IRS nor a court has said whether an event contract counts. We read the wording as pointing away from event contracts, but that is a reading of the text and nobody has ruled on it.
What is the wash sale rule?
You can’t deduct a loss on stock or securities if you buy substantially identical stock or securities within 30 days before or after the sale. That makes a 61-day window around the sale.
The loss isn’t gone. IRS Publication 550 says you add it to the cost of the new position, which “postpones the loss deduction” until you dispose of that position. Dealers in stock or securities are exempt for losses in the ordinary course of their business.
Is an event contract a stock or security?
Section 1091 says “stock or securities” also includes “contracts or options to acquire or sell stock or securities.” A contract that pays $1 if a team wins doesn’t buy or sell anyone’s stock. That is why we think the text points away from most event contracts.
Publication 550 adds that the rules “do not apply to losses from sales or trades of commodity futures contracts and foreign currencies.” It doesn’t mention event contracts. What they are is being fought over: the CFTC has proposed calling them swaps, and two appeals courts have said sports contracts are not swaps. Contracts tied to a stock price or index are the closest call, and nothing addresses those either.
On polymarket.com, your position is a digital asset. Publication 550 lists digital assets as capital assets, separately from stocks and bonds. H.R. 9172, a House bill, “would make most digital assets subject to the existing wash-sale rules,” according to one bill summary. It hasn’t passed, and we haven’t read its text, so we can’t say how it would treat a Polymarket position.
Does the answer change with your tax method?
The table shows our reading for each of the four ways traders report event contracts.
| Method | Does Section 1091 reach it? | Why |
|---|---|---|
| Capital gains | Unsettled | It depends on whether the contract is a stock or security. No guidance says. |
| Section 1256 (60/40) | Not for the year-end mark | §1256(f)(5) switches Section 1091 off for that loss. Whether event contracts qualify for Section 1256 is disputed, and it doesn’t apply to polymarket.com. |
| Ordinary income | Unsettled | Section 1091 looks at the asset, so the same question applies. |
| Gambling | We see no route | A wager isn’t being treated as a stock or security. Section 165(d) limits these losses instead, to 90% of losses and no more than winnings from 2026. |
What would change if the rule applied?
The timing would change. Say you buy 100 Yes contracts at $0.60, for $60. On December 20 you sell them at $0.30, for $30. On January 5 you buy 100 again at $0.35, for $35, and they settle at $1 in February, paying $100. Fees are left out.
| 2026 result | 2027 result | Total | |
|---|---|---|---|
| Rule doesn’t apply | $30 loss | $65 gain | $35 gain |
| Rule applies | $0 | $35 gain ($100 minus $35 minus the $30 added to cost) | $35 gain |
The total is the same. What moves is the year you get the loss. If all the trades close inside one calendar year, your yearly number doesn’t change at all. So the question mostly matters for a loss sold late in the year and rebought within 30 days, either before or after the sale.
The same contract in the same market would be the plainest case of “substantially identical.” Whether a different date or price level counts would be another open question.
Is a wash sale the same as wash trading?
No. The tax rule is about when you can deduct a loss. Wash trading is a market conduct offense. The Commodity Exchange Act makes it unlawful to enter into a transaction “commonly known to the trade as, a ‘wash sale’” in commodities for future delivery or swaps. It targets trades that give the look of activity without a real change in position. Whatever the tax answer turns out to be, don’t trade against yourself to book a loss.
What should you do at tax time?
- Keep the date and price of every buy and sell, so you can work out the answer either way.
- Check losses you took in the last 30 days of the year on contracts you bought back. If there are none, the question doesn’t affect your return.
- If the amount is large, ask a preparer which way to treat it, and keep a note of why.
- If you and your preparer treat a loss as a wash sale, Publication 550 says to enter W in column (f) of Form 8949 and the disallowed loss as a positive number in column (g).
- Don’t expect Kalshi’s numbers to settle this. Its Help Center describes first-in, first-out P&L and says nothing about wash sale adjustments.
WagerMints does not apply Section 1091, and your report says so, because the IRS hasn’t said it reaches event contracts. You see the four methods on your own trades, with that assumption stated.
Questions about wash sales on prediction markets
Does the wash sale rule apply to Kalshi?
No IRS guidance or court ruling says it does or doesn't. Section 1091 covers stock or securities and contracts or options to buy or sell them. A contract on a game or an election doesn't obviously fit that wording, but the question is open.
Does the wash sale rule apply to Polymarket?
The same question is open. IRS Publication 550 lists digital assets separately from stocks and bonds, and a bill in Congress, H.R. 9172, would bring most digital assets under the rule. That bill has not passed.
Can I sell a losing Kalshi contract in December and buy it back in January?
Nothing in the tax code stops the trades, but no guidance confirms the December loss counts. If Section 1091 applied, the loss would move to the year you close the new position. Do it only knowing that risk, and keep the dates.
Does the 30-day rule apply to Section 1256 contracts?
Section 1256(f)(5) says Section 1091 does not apply to a loss from the year-end mark to market, and Publication 550 says wash sale rules don't apply to commodity futures contracts. Whether event contracts qualify for Section 1256 is itself disputed.
How would a wash sale affect my tax bill?
Mostly through timing. The disallowed loss is added to the cost of the new position, so you get it back when that position closes. If everything closes in one calendar year, the yearly total doesn't change.
How prediction market losses are deducted. General information about US federal tax, not tax advice.
Sources
- 26 U.S.C. §1091, loss from wash sales of stock or securities
- 26 U.S.C. §1256(f)(5), wash sale rule and the year-end mark
- IRS Publication 550, wash sales and capital assets
- 26 U.S.C. §165(d), wagering losses
- 7 U.S.C. §6c(a), prohibited transactions
- PolicyRisk, summary of H.R. 9172
- Kalshi Help Center, What Tax Documentation Does Kalshi Provide? (June 22, 2026)
Run this against your own trades
WagerMints computes all four methods from your real Kalshi export or Polymarket wallet, side by side. Your trade data is processed in memory, not stored unless you opt in to share it.
Run your reportNew to this? Start with the guide to the four methods or the tax glossary.
Keep reading
All posts
October 30, 2026 · 8 min read
Polymarket Hacked Again: What the $2.7 Million Drain Means for Your Taxes
Polymarket's Oct 29 hack drained about $2.7 million; June's took $2.94 million. Who gets refunded, if refunds are taxable, and when a theft is deductible.
Read postOctober 16, 2026 · 4 min read
Are Kalshi and Polymarket Losses Tax Deductible? It Depends on One Choice
One $10,000 loss can cut your tax, carry forward, reach back three years, or vanish. Your method decides which.
Read post
November 1, 2026 · 6 min read
I Didn't Report Kalshi or Polymarket in Past Years. What Now?
Never reported your Kalshi or Polymarket trades? When to amend with Form 1040-X, when to file a late return, what penalties apply, and when to call a lawyer.
Read post