Holding Period

The holding period is the duration between when you acquire a position and when it's disposed of (settled or sold). For tax purposes, the holding period determines whether your gain is taxed at short-term or long-term capital gains rates.

Short-term vs. long-term

• Short-term: Held 1 year or less → taxed at ordinary income rates (10%–37%)
• Long-term: Held more than 1 year → taxed at preferential rates (0%, 15%, or 20%)

Prediction markets are almost always short-term

Most prediction market contracts resolve within days, weeks, or months. Elections, sporting events, economic announcements — these markets rarely stay open for more than a year. This means nearly all prediction market capital gains are short-term, taxed at your full ordinary income rate.

The Section 1256 exception

Section 1256 treatment ignores the holding period entirely. Even if you held a Kalshi contract for one day, 60% of the gain is treated as long-term. This is the primary advantage of Section 1256 for prediction market traders.

Calculating the holding period

The holding period starts the day after you acquire the shares and includes the day of disposition. If you buy on March 1 and the market settles on March 15, your holding period is 14 days (short-term).