How to Report Kalshi Taxes in 2024: Section 1256 vs Ordinary Income
December 15, 2024
If you traded on Kalshi in 2024, you owe taxes on your net gains. That part isn't ambiguous. What is ambiguous is how to report them — and the treatment you pick can change your bill by hundreds of dollars.
There are three plausible ways to treat Kalshi event contracts on your return. Here's what each one means in actual dollars.
The three treatments
1. Section 1256 (60/40 split)
If Kalshi contracts qualify as regulated futures contracts or nonequity options, they fall under Section 1256. This splits every dollar of gain into 60% long-term capital gains and 40% short-term — regardless of how long you held the position.
At the 22% ordinary bracket, the math on $3,200 net gains:
- 60% × $3,200 × 15% (LTCG rate) = $288
- 40% × $3,200 × 22% (ordinary rate) = $281.60
- Total: ~$570
The long-term rate is doing the heavy lifting here. Even if you held the contract for ten minutes, 60% of the gain gets the lower rate.
2. Ordinary income
Treat gains and losses as plain ordinary income. Net your wins and losses, report the total.
- $3,200 × 22% = ~$704
Simple, conservative, and the most expensive option at this bracket. Losses are deductible against other ordinary income, subject to the usual rules.
3. Gambling income
This one gets weird. Gross winnings are reported as income on Schedule 1. Losses are only deductible if you itemize — and only up to the amount of your winnings.
If your net gains are all wins (no offsetting losses), it works out the same as ordinary income: ~$704 on $3,200. But if you have a mix of wins and losses and you take the standard deduction, gambling treatment can actually be worse than ordinary income because you can't net the losses.
Side-by-side comparison
| Treatment | Tax on $3,200 gains (22% bracket) | |---|---| | Section 1256 (60/40) | ~$570 | | Ordinary income | ~$704 | | Gambling income | ~$704+ |
That's a ~$134 difference between Section 1256 and ordinary income on a relatively small gain. Scale that to five figures and the gap widens fast.
Which one should you use?
We're not going to tell you. Seriously — the IRS hasn't issued definitive guidance on whether event contracts qualify under Section 1256, and the CFTC classification of Kalshi's contracts adds another layer of complexity. Your CPA needs to make this call based on your specific situation.
What we can tell you is the exact dollar impact of each treatment on your actual trades. That's what 1256.tax does: you upload your Kalshi CSV, and we show you all three treatments side by side with real numbers — not hypothetical brackets, your actual P&L.
Before April 15
Upload your Kalshi trade history to 1256.tax and see the comparison for your real trades in about two minutes. It's a one-time $49 report — less than the difference between treatments for most active traders.
Your CPA will thank you for showing up with all three options already calculated.