Prediction Market Taxes in 2026: Why the 90% Loss Rule Raised the Stakes

Prediction market taxes were already messy before 2026. Now they are messier for one simple reason: if your trading ends up classified as wagering, the new federal loss rule can create taxable income even in a break-even year.

That does not mean the IRS has issued clear, prediction-market-specific guidance telling every Kalshi, Robinhood, Polymarket, or PredictIt user exactly how to file. It has not. What the IRS has made clear is more limited, but still important: gambling winnings are taxable, gambling losses are deductible only in specific ways, and recordkeeping is your problem, not the platform's.

This guide sticks to what can actually be verified from IRS and platform materials. It is not personal tax advice. It is the cleanest answer to three questions traders are actually asking in 2026:

1. What do the IRS and platforms clearly say?
2. Why does the new 90% loss rule matter so much?
3. What records should you have before tax season gets ugly?

The part the IRS is crystal clear about

The IRS says gambling winnings are fully taxable and must be reported on your tax return, even if you do not receive a Form W-2G. In IRS Topic No. 419, the agency says you must report all gambling winnings on Form 1040 or 1040-SR using Schedule 1, including winnings that are not reported on Form W-2G.[^irs-topic-419]

The IRS also says gambling losses are deductible only if you itemize on Schedule A, and even then the losses cannot exceed the amount of gambling income you reported.[^irs-topic-419] The Schedule A instructions make the same point in plainer filing language: gambling losses are listed under other itemized deductions and are allowed only to the extent of gambling winnings reported on Schedule 1.[^irs-schedule-a]

Publication 525 adds another important detail. It says gambling winnings go on Schedule 1, that fantasy sports winnings are gambling winnings, and that if you are in the trade or business of gambling you use Schedule C instead.[^irs-pub-525]

That is the verified baseline. The IRS is clear about how gambling income works. What it is not clear about is whether every kind of prediction market contract should be treated that way.

Why the 2026 change matters so much

The 2026 problem is not just "taxes are annoying." It is that the downside got worse if your activity is treated as wagering.

A 2025 change to Section 165(d) reduced the allowable deduction for wagering losses from 100% of losses to 90% of losses, still capped at gains from those transactions, for tax years beginning after December 31, 2025.[^hr1][^jones-walker]

That means a trader who has $10,000 of gains and $10,000 of losses from activity treated as wagering may be able to deduct only $9,000 of those losses. Economically that trader broke even. Tax-wise, that trader may still show $1,000 of taxable income.

That is the phantom-income problem people keep talking about. It is not hype. It flows directly from the new 90% haircut if the activity lands in the wagering bucket.

Just as important, the IRS still says gambling losses go on Schedule A and require itemizing.[^irs-topic-419][^irs-schedule-a] So the gap is now bigger between:

• activity treated as wagering, where loss rules are harsher, and
• activity treated some other way, where different reporting frameworks may apply.

The classification question mattered before. In 2026 it matters a lot more.

What the IRS does not clearly tell prediction market traders

Here is the honest answer: the IRS has not published a dedicated prediction-market tax guide that cleanly says, "Kalshi goes here, Robinhood event contracts go here, Polymarket goes here."

That missing guidance is the whole reason prediction market taxes feel chaotic. Traders are forced to work backward from older IRS rules, platform statements, and their own transaction history.

The safest thing you can say from primary sources is this:

• the IRS clearly explains how gambling income and losses work,[^irs-topic-419][^irs-pub-525]
• the IRS clearly explains how to report sales and exchanges of capital assets on Form 8949, including transactions even when you did not receive a Form 1099-B or Form 1099-DA,[^irs-8949]
• but the IRS does not clearly map prediction market contracts into one universal filing treatment.

That gap is why any article claiming there is one neat IRS-approved answer for every platform is overselling it.

What the platforms actually give you

The next useful question is not "What should the IRS think?" It is "What records will the platform actually hand me?"

Kalshi

Kalshi's help center says users who hit IRS reporting thresholds may receive:

• 1099-INT for interest payments,
• 1099-MISC for credits or rewards,
• 1099-B for transaction proceeds from broker transactions tied to crypto transfers, and
• 1099-DA for digital asset transaction reporting from ZeroHash.[^kalshi-tax]

Kalshi also says users can find tax documentation in the account Tax Info page, and that the Profit and Loss statement summarizes trading activity including profits, losses, and fees.[^kalshi-tax]

That is useful, but it is not the same thing as Kalshi telling you that ordinary event-contract trading will arrive in one complete broker-style tax form.

Robinhood event contracts

Robinhood's support language surfaced in its official support materials says Robinhood follows applicable tax reporting rules, may issue the appropriate 1099 in the future if required, and could change its reporting if the IRS provides specific guidance on event contracts.[^robinhood-support]

That is not a complete answer, but it is still revealing. Robinhood is basically saying the reporting rules for event contracts are not settled enough for a definitive long-term promise.

PredictIt

PredictIt's support materials are much more explicit about its own threshold. Its help article says PredictIt is required to issue Form 1099 to U.S. traders with net profit of $600 or more in a calendar year, and it defines net profit as gross profits minus losses, trading fees, and withdrawal fees.[^predictit-tax]

That does not resolve the broader classification debate either. But it does tell you how PredictIt calculates the threshold for its own reporting.

Polymarket

I could not verify a first-party Polymarket help-center page that cleanly explains tax forms. That matters, because it means I am not going to pretend there is one. If you are using Polymarket, especially outside a conventional brokerage-style account structure, you should assume your own recordkeeping burden is heavier unless and until the platform publishes clearer official tax guidance.

Why no 1099 does not save you

This is the most common bad assumption in the category: "If the platform did not send me a form, maybe the IRS does not care."

That is wrong.

IRS Topic No. 419 says you must report all gambling winnings, including winnings not reported on Form W-2G.[^irs-topic-419] The Form 8949 instructions say to report sales and exchanges of capital assets, including transactions for which you did not receive Form 1099-B, Form 1099-DA, or Form 1099-S.[^irs-8949]

So whatever filing position a taxpayer ultimately takes, the absence of a platform form is not a free pass. At best it means more manual work.

The recordkeeping standard is higher than most traders think

The IRS is blunt about records. To deduct gambling losses, you must keep an accurate diary or similar record of winnings and losses and be able to provide receipts, tickets, statements, or other records showing both amounts.[^irs-topic-419][^irs-p529]

That matters because prediction market traders often assume the platform dashboard is enough. Sometimes it is not.

At minimum, a serious trader should preserve:

• account statements and annual summaries,
• CSV exports or transaction history downloads,
• dates of acquisition and sale or settlement,
• proceeds received,
• cost basis paid,
• fees charged,
• deposits and withdrawals, and
• any year-end open-position records.

If you end up needing Form 8949-style reporting, the IRS instructions explicitly expect transaction-level details like date acquired, date sold, proceeds, basis, and adjustments.[^irs-8949]

If you end up in a wagering framework, the IRS still expects separate records of winnings and losses rather than a single net figure.[^irs-topic-419][^irs-p529]

Either way, sloppy records are how a manageable filing problem turns into a miserable one.

Why 2026 is different for active traders

Before the new 90% rule, a lot of casual discussion around prediction market taxes boiled down to "annoying but manageable." That is too casual now.

In 2026, a high-volume trader can be economically flat and still care deeply about classification because the wagering bucket can now produce phantom taxable income. The more gross activity you generate, the more painful that can get.

That does not prove prediction market activity is wagering for every taxpayer or every platform. It proves the stakes of the classification fight are higher than they used to be.

If you only take one thing from this article, make it this: the real tax risk in 2026 is not just paying tax on gains. It is discovering too late that the framework you assumed would let losses fully offset activity does not work the way you thought.

A practical 2026 checklist

Here is the cleanest non-hype checklist based on what the IRS and platforms actually say.

1. Do not assume the platform form tells the whole story

Kalshi may issue some tax forms, PredictIt has its own reporting threshold, and Robinhood says event-contract reporting rules may change with future guidance.[^kalshi-tax][^predictit-tax][^robinhood-support] None of that means your return is finished just because a document appeared in January.

2. Do not assume no form means no reporting obligation

The IRS explicitly says otherwise.[^irs-topic-419][^irs-8949]

3. Save records before year-end

Do not wait until March to discover the dashboard changed, a CSV is incomplete, or a platform no longer presents data the way you expected.

4. Treat the 90% wagering-loss rule as a real risk, not trivia

If your activity could plausibly be analyzed as wagering, that haircut matters now.[^hr1][^jones-walker]

5. Get platform-specific help when the dollars are real

Prediction market taxes are still a gray zone. If you traded meaningful size, this is not the moment for Reddit confidence.

FAQ

Did the IRS issue a prediction-market-specific tax rule for 2026?

I could not verify one. The IRS has clear rules for gambling income and losses, and clear instructions for reporting capital-asset sales on Form 8949, but not a single published rule that cleanly maps every prediction market platform into one category.[^irs-topic-419][^irs-8949]

What changed in 2026?

Section 165(d) was changed so wagering losses are deductible at 90% of losses, still limited by gains from those transactions, for tax years beginning after December 31, 2025.[^hr1][^jones-walker]

Can a break-even trader owe tax under the new rule?

Yes, if the activity is treated as wagering. A trader with equal gains and losses may still be left with taxable income because only 90% of losses are deductible under that rule.[^hr1][^jones-walker]

Does Kalshi provide tax documents?

Kalshi says users who hit IRS reporting thresholds may receive 1099-INT, 1099-MISC, 1099-B, and 1099-DA, and it provides a Profit and Loss statement in the account tax area.[^kalshi-tax]

Does PredictIt provide a tax form?

PredictIt says it is required to issue Form 1099 to U.S. traders with net profit of $600 or more in a calendar year, using its stated net-profit formula.[^predictit-tax]

What records should I keep?

At a minimum: statements, transaction exports, dates, proceeds, basis, fees, and proof of deposits and withdrawals. The IRS says taxpayers need records showing both winnings and losses, and Form 8949 requires transaction-level reporting detail when that form applies.[^irs-topic-419][^irs-8949]

Conclusion

Prediction market taxes are still a gray area, but the gray area got more expensive in 2026.

The IRS is clear about a few things: winnings are taxable, wagering losses require itemizing, records matter, and missing forms do not erase reporting obligations. The platforms are clear about a few things too: documentation is partial, not universal, and you should not expect a perfect broker-style tax packet to solve the whole problem for you.

That is why the smart move in 2026 is less about finding one magic answer and more about protecting yourself with good records, honest assumptions, and platform-by-platform caution.

If you are comparing platforms or planning where to trade next, PredictionMarkets.US can help you understand how the market works. But for filing positions with real money on the line, the right move is to bring your records to a tax professional before the IRS brings the shovel.

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Sources & Verification

• IRS says gambling winnings are fully taxable and must be reported on Schedule 1 even if no Form W-2G is issued: IRS Topic No. 419 — verified 2026-04-06
• IRS says gambling losses are deductible only if the taxpayer itemizes on Schedule A and only up to reported gambling income: IRS Topic No. 419 — verified 2026-04-06
• IRS Schedule A instructions list gambling losses as other itemized deductions only to the extent of gambling winnings reported on Schedule 1: Instructions for Schedule A (Form 1040) — verified 2026-04-06
• IRS Publication 525 says gambling winnings go on Schedule 1, fantasy sports winnings are gambling winnings, and trade-or-business gambling uses Schedule C: Publication 525 — verified 2026-04-06
• IRS Form 8949 instructions say taxpayers report sales and exchanges of capital assets and include transactions even without Form 1099-B or Form 1099-DA in some cases: Instructions for Form 8949 — verified 2026-04-06
• Section 165(d) was amended so wagering losses are deductible at 90% of losses, limited by gains, effective for tax years beginning after 2025: H.R. 1 / statutory text excerpt in analysis of Section 70114 and FAIR Bet Act text showing Congress proposed replacing “90 percent” with “100 percent” — verified 2026-04-06
• Kalshi says users hitting IRS thresholds may receive 1099-INT, 1099-MISC, 1099-B, and 1099-DA, and can access tax documentation in the account Tax Info page: Kalshi Help Center — verified 2026-04-06
• Robinhood says it adheres to applicable tax reporting rules and could issue the appropriate 1099 in the future if IRS guidance changes for event contracts: Robinhood Event Contracts support page — verified 2026-04-06 via official support-page search snippet because direct fetch was blocked
• PredictIt says it issues Form 1099 to U.S. traders with net profit of $600 or more and defines net profit as gross profits minus losses, trading fees, and withdrawal fees: PredictIt support article — verified 2026-04-06