Why sports markets are treated as gambling

Resolver reports positions in Sports markets under the US gambling (wagering) rules in IRC §165(d), rather than as capital gains. This page explains why, and what it means for your tax return.

Our reasoning

US tax law already has a well-established school of guidance for bets on sporting events, and that is the treatment we think is easiest to defend if you are ever asked to justify your return.

While there has been some advocacy for alternative tax treatment, it is our view that this is unlikely to be accepted by the IRS. Because wagering generally results in a higher tax bill, if you were to treat these as e.g. capital gains and then later reclassify them as wagering, you would owe more money to the IRS.

The federal wagering excise tax (IRC §4421) expressly defines a "wager" to include bets on a sports event or contest. The same bet placed with a sportsbook is unambiguously gambling income. Treating an economically identical position differently just because it was bought on a prediction market is unlikely to to be accepted by the IRS.

What this means for your return

• Winnings on sports events are taxed as ordinary income. Each winning position counts as gambling winnings, reported as other income on Schedule 1. Wins and losses are tracked position by position rather than netted into a single figure.

• Losses only help if you itemize. Gambling losses are deducted on Schedule A, and only up to the amount of your gambling winnings for the year. If you take the standard deduction, losses do not reduce your tax.

  • This is important to call out because most people do take the standard deduction (91% as of 2022). You need your itemised losses to exceed the standard deduction to benefit from this.

• From 2026, only 90% of losses count. The One Big Beautiful Bill Act limits the deduction to 90% of your gambling losses for tax years beginning after 31 December 2025. If you win $10,000 and lose $10,000, you can deduct $9,000, so $1,000 is taxable even though you broke even.

• No capital gains features. There is no short-term / long-term split, sports losses cannot offset capital gains from your other markets, and unused losses do not carry forward to future years.

• Professional gamblers who report on Schedule C are subject to the same 90% limit and cannot use gambling losses to create a net operating loss.

• State rules vary. Some states do not allow a gambling loss deduction at all; others follow the federal rules as of a fixed date. Check how your state treats gambling income.

If you or your adviser take a different view

Because there is no official guidance, your tax adviser may take a different position. If this is the case, you can disable the treatment of sports events as wagering on the Settings > Tax page.

Resolver provides calculations to help you prepare your return. It is not tax advice. Please speak to a qualified tax professional about your own circumstances.