Kalshi and prediction markets in New Mexico: taxes and legal status

New Mexico's 2025 rates run from 1.5% to 5.9%. The 5.9% rate applies to taxable income over $210,000 for single filers and over $315,000 for joint filers and heads of household.

New Mexico gives no break on short-term gains, which covers nearly every prediction market trade. Its capital gains deduction (PIT-ADJ, line 16) counts only net long-term gains.

New Mexico uses the standard or itemized deduction from your federal return (PIT-1, line 12). Gambling losses you itemize federally, up to your winnings, carry over that way. The department may ask for records that back up the losses.

• Casino, racing, bingo and New Mexico lottery winnings are subject to New Mexico withholding. Nonresidents with winnings sourced to New Mexico are taxed on them.
• New Mexico follows your federal choice. If you took the federal standard deduction, you use it on the PIT-1 too.
• New Mexico's withholding guide (FYI-107, 2018 revision) lists 6% on gambling winnings, including the New Mexico lottery, when federal withholding is required.
• Because New Mexico copies the itemized deduction from your federal return, the federal rule that only 90% of gambling losses count from 2026 carries through. New Mexico hasn't said this in words.

As of October 27, 2026, no order in force stops prediction market trading in New Mexico, but the state, tribes and the federal government are all in court over it. Attorney General Raul Torrez sued Kalshi in June 2026, the Mescalero Apache Tribe and other tribes sued Kalshi in May, and the CFTC sued New Mexico on June 12. Polymarket US, Novig and Underdog have also sued the attorney general.

States say prediction market sports contracts are bets that their gambling laws cover, while Kalshi and the CFTC say they are swaps, a kind of derivative that only the federal Commodity Exchange Act and the CFTC regulate. The Third Circuit appeals court sided with Kalshi against New Jersey in April 2026, while the Ninth Circuit (Nevada, August 2026) and the Sixth Circuit (Ohio and Tennessee, September 2026) ruled for the states, all at the preliminary stage. The Fourth Circuit (Maryland) heard argument in May 2026 and had not ruled as of October 27. New Jersey's petition to the Supreme Court, Flaherty v. KalshiEX (No. 26-299), is waiting on Kalshi's response due November 9, 2026, and the Court has not yet said whether it will hear the case. On October 9, 2026 the CFTC proposed a rule defining event contracts as swaps.

The IRS hasn’t said how prediction market trades are taxed, so you pick one of four federal methods: capital gains, ordinary income, gambling or Section 1256. New Mexico starts from your federal figures, so the method you choose federally generally carries onto your state return. If you report as gambling, the loss rules above apply. The four methods, compared.

The court cases are about whether New Mexico can license or stop the platforms. None of them decides how your trades are taxed. Trades you already made, including positions an order made you close, still count in your tax year.