To enter your prediction market transactions as capital gains and losses you will enter them the same way you would transactions on 1099-B that you enter yourself (as opposed to importing).
- Go to Wages & Income, Select Investments and Savings....
- Since you've already entered your 1099-B, click on the "Add Investments" box.
- On the page "Let's Import your tax info" click on "Enter a different way"
- Select "Other" on the OK let's start with one investment type
- When asked "Tell us more about this sale?" Give a description of the prediction market platform (e.g. Kalshi, Robinhood) Click Continue
- On the page "Now, enter one sale...":
- For "What type of investment did you sell? Select "Other"
- Enter the date acquired and the date you closed the position or expiration date
- Your "winnings" will be proceeds. Your cost basis will be what you lost.
- On the next page, click Continue, and your done
I've done some additional research and I believe that these transactions will end up having to be reported as Section 1256 transactions. I say this due to the fact that the The Commodity Futures Trading Commission (CFTC) is claiming jurisdiction over prediction markets. The CFTC is the primary federal agency that regulates the U.S. derivatives markets, including commodity futures, options, and swaps.
If you want to report your prediction market transactions as 1256 Transaction:
- Go to "Less Common Investments and Savings"
- Next to "Contracts and Straddles" select "Start"
- Answer "Yes" to "Any Straddles or Section 1256 Contracts?"
- On the next screen, it is highly unlikely that you need to make any elections, so just click "Continue"
- On the screen with "Contracts and Straddles", more than likely you only need to select Section 1256 contracts... You may want to read the IRS instructions for Form 6781, Gains and Losses from Section 1256 Contracts and Straddles
- Select "I'll report the totals from each broker or account.
- Enter the information to report your your profits and losses from your Section 1256 Options transactions.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
