Capital gain
Profit from selling a capital asset. Whether Kalshi event contracts produce capital gains is unsettled; Section 1256 treatment gives capital-gains-style rates via the 60/40 split.
Don't assume Kalshi gains are ordinary capital gains. Only some treatments resemble capital-gains taxation, and which applies to event contracts is contested, so the rate and forms depend on the stance you take.
A capital gain is the profit from selling an asset for more than its cost basis. In ordinary investing, capital gains are split into short-term (assets held a year or less, taxed at ordinary rates) and long-term (held more than a year, taxed at lower rates), and reported on Schedule D and Form 8949.
For prediction-market trading, whether this framework applies is part of the unsettled tax question. If event contracts are treated as ordinary income, the capital-gain split does not apply and the whole net is taxed at your marginal rate. If they qualify as Section 1256 contracts, the holding-period distinction is overridden entirely by the 60/40 rule, which taxes 60 percent long-term and 40 percent short-term regardless of how long you held.
The practical point is that the label matters less than the treatment you and your preparer choose. Short-term capital-gain treatment and ordinary treatment often produce a similar bill for a fast trader, while Section 1256 generally produces a lower one. Which is correct for your activity is a professional judgment given the unsettled law.
Outside of Section 1256, a contract bought at 40 cents and sold at 70 cents produces a 30-cent capital gain per contract, taxed as short-term (your ordinary rate) because the holding period was brief. Under Section 1256, that same gain would instead be split 60/40 regardless of holding time.
Frequently asked questions
What is a capital gain?
It is the profit from selling an asset above its cost basis. Traditionally it is short-term (held a year or less) or long-term (held longer), with long-term taxed at lower rates.
Are Kalshi gains capital gains?
It is unsettled. They may be treated as ordinary income, as short-term capital gains, or under Section 1256, which overrides the holding-period split with a fixed 60/40 division. A preparer decides the right treatment.
Does holding period matter for Kalshi taxes?
Under ordinary or capital treatment it can, but most prediction-market trades are short-term anyway. Under Section 1256 the holding period does not matter because the 60/40 rule applies regardless.