Prediction markets' 4.5% vig gap and possible §1256 tax treatment spotlight Kalshi edge
Tax professionals are debating whether Kalshi contracts qualify for favorable treatment under Section 1256 of the tax code, according to a May 27 analysis from Natptax.com. Section 1256 contracts receive 60/40 long-term/short-term capital gains characterization and mark-to-market accounting. Meanwhile, a May 26 Tech Insider analysis found prediction markets carry a 4.5% lower vigorish than traditional sportsbooks. The outlet identified the tax treatment of prediction-market profits as an under-discussed advantage for traders. Kalshi event contracts settle on a CFTC-registered designated contract market as binary products. Both analyses point to tax structure and commission spreads as structural edges for regulated prediction markets over conventional sportsbooks.
Kalshi's CFTC designation as a Designated Contract Market now carries direct tax implications if Section 1256 qualification is confirmed. That would give its traders a permanent after-return advantage over sportsbook bettors subject to ordinary income treatment, reshaping retail flow decisions across both channels.