Holding period

How long you held a position before closing it, which normally determines short- versus long-term capital-gains rates. Section 1256 overrides this with a fixed 60/40 split.

For most assets, holding over a year earns lower long-term rates. Section 1256 ignores holding period entirely, treating 60 percent as long-term and 40 percent as short-term regardless, an advantage for short-term traders if it applies.

Holding period is how long you own an asset before selling, and in ordinary tax treatment it determines whether a gain is short-term or long-term. Assets held more than a year qualify for lower long-term capital-gains rates; assets held a year or less are short-term and taxed at ordinary rates. Most prediction-market positions are held briefly, so they would be short-term under that framework.

The reason holding period matters less for Kalshi than for stocks is Section 1256. If event contracts qualify for 1256 treatment, the holding-period distinction is overridden entirely: 60 percent of the net is taxed at the long-term rate and 40 percent at the short-term rate no matter how briefly you held, even seconds. That is precisely why the 60/40 rule is valuable to fast traders.

So for a typical Kalshi trader, holding period is mostly relevant under ordinary or capital treatment, where nearly everything is short-term anyway, and largely irrelevant under Section 1256. Either way, the year-plus long-term threshold rarely comes into play for active prediction-market trading.