Cost Basis

Cost basis is the foundation of every tax calculation. It represents how much you paid — in total — to acquire a position. When that position closes, your gain or loss is simply:

Calculating cost basis for prediction markets

For a single purchase, cost basis is straightforward:

Example: Buy 500 YES shares at $0.55 with $2.00 in fees = $277.00 cost basis.

Multiple purchases in the same market

If you buy into a market multiple times at different prices, your cost basis per share depends on the method used to match shares. Under FIFO (first in, first out) — the IRS default — earlier purchases are matched first.

Example: You buy 100 shares at $0.30, then 100 more at $0.60. The market settles YES. Under FIFO, the first 100 shares have a cost basis of $30 and the second 100 have a cost basis of $60.

Cost basis and the IRS

Accurate cost basis is critical because it's reported on Form 8949 and directly determines your taxable gain or loss. If a platform issues a 1099-B (like Kalshi does), the cost basis may already be reported to the IRS. If the numbers don't match your return, it can trigger a notice.