Online sports betting remains illegal in Minnesota and 19 other states, but that hasn’t stopped a new wave of digital platforms from finding creative ways to let Americans wager on everything from football games to the fate of global leaders. At the heart of this trend are prediction markets like Kalshi and Polymarket—services that, on paper, aren’t sportsbooks but instead let users trade contracts on real-world events, including the outcomes of National Football League games. As Wall Street pours billions into this rapidly growing sector and regulatory attitudes shift, these platforms are reshaping the landscape of American betting—and upending the tax rules along the way.
For Ian White, a special education paraprofessional in Minnesota, the allure of these new markets is both practical and thrilling. “I do consider Kalshi betting,” White told The New York Times, “but I love how they get around it by selling futures.” White buys $10 contracts on NFL games and has pocketed about $130 so far—no small feat in a state where traditional online sportsbooks like FanDuel and DraftKings are banned. Kalshi’s secret? It sells futures contracts, a technical distinction that allows it to sidestep state gambling laws, at least for now.
Kalshi and similar platforms have been publicly available since the early 2020s, offering users the chance to trade on the outcomes of all sorts of real-world events. While they once focused on things like election results or government shutdowns, these markets have recently expanded to sports, letting users predict point spreads and over/under outcomes in a way that looks, feels, and pays out much like conventional sports betting. The difference, as Forbes explains, is that Kalshi’s contracts are regulated as commodities—akin to trading oil or gold futures—rather than as gambling.
This legal distinction isn’t just a workaround for state betting bans; it also brings major tax advantages. Traditional sports gambling winnings are taxed as ordinary income under Section 61 of the Internal Revenue Code, and losses can only be deducted to the extent of winnings—plus, only if the taxpayer itemizes their deductions. According to the Tax Foundation, just 13.7% of Americans itemize, meaning most end up paying taxes on sports gambling earnings even if they lose money overall. For example, a bettor who wins $100 on a game but loses $110 on another will still owe taxes on the $100 if they don’t itemize, despite being down $10 overall.
Prediction markets like Kalshi, however, are treated differently. Because their contracts are considered commodity futures under Section 1256, losses can be deducted against gains without itemizing. Even more, up to $3,000 in net losses per year can be deducted directly from ordinary income, with any excess carried forward indefinitely. As Forbes notes, this means that for the majority of taxpayers, prediction market wagers are far more tax-efficient than traditional sports bets. Not every platform qualifies—Polymarket, for instance, didn’t have Commodity Futures Trading Commission (CFTC) designation until recently, so its tax treatment was less favorable until it acquired a derivatives exchange and clearinghouse in July 2025.
The tax gap between these two forms of betting is set to widen even further in 2026. The One Big Beautiful Bill Act of 2025, as reported by Forbes, will reduce the deductibility of sports gambling losses from 100% to 90% for itemizers. This change doesn’t apply to prediction markets like Kalshi, which retain their commodity status and full loss deductibility. The result: two people making the same bet—one on a sportsbook, one on a prediction market—could face dramatically different tax bills, a discrepancy that’s drawing attention from policymakers and industry insiders alike.
Wall Street has taken notice of the prediction market boom. On October 7, 2025, Intercontinental Exchange (ICE), owner of the New York Stock Exchange, announced a $2 billion investment in Polymarket, valuing the crypto-powered platform at $8 billion—up sharply from $1 billion in its last fundraising round just months earlier, according to The New York Times and Quartz. “This marks a major step in bringing prediction markets into the financial mainstream,” said Shayne Coplan, Polymarket’s founder and CEO.
Polymarket, which lets users bet on everything from NFL games to the chart performance of Taylor Swift songs, has had a turbulent regulatory history. In 2022, it was forced to block U.S. traders after regulators found it was operating without CFTC registration. But a more crypto-friendly White House has shifted the winds: in July 2025, the Department of Justice and CFTC dropped investigations into Polymarket without charges, and the company’s acquisition of a derivatives exchange enabled its legal return to U.S. markets. Notably, Donald Trump Jr.’s venture capital firm, 1789 Capital, invested in Polymarket in August 2025, and Trump Jr. joined its advisory board—he also advises Kalshi, Polymarket’s chief rival.
Both Polymarket and Kalshi have added sports-related prediction markets in 2025 that, with the tacit approval of the White House, now operate in all 50 states—regardless of local sports-betting bans. This expansion has fueled a surge in user activity and revenue, with Piper Sandler estimating that prediction market revenue could hit $8 billion by 2030. The platforms’ appeal isn’t limited to sports bettors: Kalshi has inked deals with online brokerages like Robinhood and Webull, making it as easy to buy a prediction contract as it is to trade a stock.
The regulatory climate is also evolving. After years of skepticism, leaders at the Securities and Exchange Commission and CFTC have signaled a willingness to allow responsible listing of event contracts on prediction markets. In July 2025, federal prosecutors closed a high-profile investigation into Polymarket’s founder, Shayne Coplan, further clearing the way for mainstream adoption. As these platforms expand, they’re not just attracting individual bettors but also institutional investors, who see opportunities in both trading and data distribution—ICE, for example, will become a global distributor of Polymarket’s market data.
Still, the rise of prediction markets raises thorny questions. Why should two nearly identical bets—one on a sportsbook, one on a prediction market—face such different tax treatment? The rules that govern gambling losses were written long before the digital age, when sports betting was mostly confined to casinos or racetracks. As Forbes points out, policymakers may soon have to address these inconsistencies, especially as more Americans and major financial institutions flock to these platforms.
For now, the line between gambling and trading is blurrier than ever, and the winners are those who know how to navigate the new rules. Whether you’re a casual NFL fan in Minnesota or a Wall Street titan, the future of betting—and its tax bill—may look very different in the years ahead.
