Long-Term Capital Gains

Long-term capital gains are profits from assets held for more than one year. They receive preferential tax treatment with rates significantly lower than ordinary income rates.

2024 long-term capital gains rates

• 0%: Taxable income up to $47,025 (single) / $94,050 (married filing jointly)
• 15%: Up to $518,900 (single) / $583,750 (married filing jointly)
• 20%: Above those thresholds

Relevance to prediction markets

Very few prediction market positions are held for over a year, so organic long-term capital gains are rare. However, Section 1256 treatment automatically classifies 60% of all gains as long-term, regardless of holding period. This is the main tax advantage of Section 1256 for prediction market traders.

Savings example

$20,000 prediction market profit, 24% marginal bracket:

• All short-term: $20,000 × 24% = $4,800
• Section 1256 (60/40): ($12,000 × 15%) + ($8,000 × 24%) = $1,800 + $1,920 = $3,720
• Savings: $1,080