Prediction markets and forecast contracts have exploded in popularity.
Platforms such as Kalshi, Polymarket, Novig and other event-contract exchanges allow traders to take positions on everything from elections and economic data to cryptocurrency prices, sports, weather and other real-world events.
But as prediction-market trading volume grows, one major question remains:
How are prediction-market profits and losses taxed?
The answer is not as simple as calling every prediction a gambling wager.
Depending on the platform, the specific contract and how the product is structured, prediction-market activity may potentially involve capital gains and losses, Section 1256 treatment for qualifying contracts, wagering rules, or other tax treatment.
Unfortunately, the federal tax rules have not developed as quickly as the prediction-market industry.
That makes understanding exactly what you traded increasingly important.