Disposition

A disposition is any event that closes your position and creates a taxable event. In prediction markets, there are two types of dispositions:

1. Settlement

The most common disposition. The market resolves (the event either happens or doesn't), and your contract automatically pays out or expires worthless. If you hold YES shares and the market resolves YES, you receive $1.00 per share. If it resolves NO, you receive $0.00.

2. Sale before settlement

You can sell your shares on the open market before the event resolves. Your proceeds are whatever the buyer pays. This is less common but happens when traders want to lock in profits or cut losses before the market closes.

Disposition date = tax year

The disposition date determines which tax year the gain or loss belongs to. If you buy shares in December 2024 but the market settles in January 2025, the gain or loss goes on your 2025 tax return — not 2024.

Holding period

The time between your purchase date and disposition date is the holding period. This matters for capital gains tax treatment: over one year = long-term rates, under one year = short-term rates (taxed as ordinary income).