Prediction markets like Kalshi offer a fresh way for people to bet on sports outcomes with better tax breaks than traditional apps. As new laws in 2025 change how gambling losses get deducted, these platforms treat bets as commodity trades, helping users save on taxes while enjoying the same thrills.
How Prediction Markets Work for Sports Bets
Platforms such as Kalshi let users trade contracts on event outcomes, including sports games. You buy a contract if you think an event will happen, and sell if you believe it won’t.
This setup differs from apps like FanDuel or DraftKings, where bets are straight wagers. Prediction markets operate under rules from the Commodity Futures Trading Commission, making them legal in more places.
Users can bet on things like a team covering the spread or total points in a game. Volumes have surged, with some platforms handling billions in trades this year.
Many see this as a loophole around state gambling laws. In states where sports betting stays illegal, prediction markets slip through as financial trades.
Tax Rules for Traditional Sports Gambling
Sports betting winnings count as ordinary income, taxed at rates up to 37 percent. Losses offset winnings, but only as itemized deductions.
The One Big Beautiful Bill Act of 2025 cut loss deductibility from 100 percent to 90 percent starting next year. This hits itemizers hard, raising effective tax costs.
For example, a $100 win with $110 loss means you report $100 income but deduct only $99 if itemizing. Non-itemizers get no break at all.
Most Americans take the standard deduction, so they pay taxes on gross wins without loss offsets. This leads to taxes even on net losing years.
Experts note this change could shrink the gambling industry, pushing users to seek better options.
Tax Advantages of Prediction Markets
Prediction markets treat profits as ordinary income too, but without the gambling label. This avoids special wagering rules and withholding.
Winnings go under other income on tax forms, with no automatic reporting like casino wins. Users track their own trades.
Key perks include full loss offsets against gains, not limited like gambling deductions. Trades resemble futures contracts, allowing capital treatment in some cases.
A recent report showed users saving up to 10 percent on taxes compared to traditional bets. For high rollers, this adds up fast.
No state excise taxes apply either, since these aren’t classified as gambling. This makes them appealing in high-tax areas.
Real World Examples and Impacts
Take a bet on an NFL game spread. On a sports app, a $110 wager winning $100 gets taxed on the full $100 if you don’t itemize.
The same bet on a prediction market lets you offset losses fully against other trades. Net losers pay nothing.
One user shared on social media how switching saved thousands in taxes this season. Volumes on platforms like Kalshi hit over $500 million weekly in 2025.
Industry analysts predict traditional sportsbooks will lose market share. Some estimate prediction markets could grab 20 percent of bets by 2027.
Challenges remain, like regulatory scrutiny. Officials debate if these are truly different from gambling.
Comparing Costs and Benefits
To see the differences clearly, look at this breakdown of a sample $1000 betting scenario over a year:
| Aspect | Traditional Sports Betting | Prediction Markets |
|---|---|---|
| Winnings Taxed | Full amount as income | As other income |
| Loss Deduction | Up to 90% if itemizing | Full offset possible |
| State Taxes | Often apply | Usually none |
| Reporting | Automatic for big wins | Self-reported |
| Net Tax Savings | Lower | Higher, up to 10% |
This table shows why many switch for tax efficiency.
Future Outlook and Advice
Regulators might close gaps as prediction markets grow. Bills in Congress aim to align tax rules across platforms.
For now, users enjoy advantages, but experts advise keeping good records. Consult a tax pro to maximize benefits.
Sports fans exploring options find prediction markets blend excitement with smarts. As 2025 unfolds, watch for more shifts in this space.
What do you think about these tax perks? Share your views in the comments and pass this article along to fellow bettors.
