Are prediction market losses tax deductible?

Yes, but the rules differ by platform. On Kalshi, losses follow Section 1256 rules and can offset other Section 1256 gains, with up to $3,000 per year deductible against ordinary income and the ability to carry losses back three years. On Polymarket, losses are likely capital losses that can offset capital gains and up to $3,000 of ordinary income per year, with unused losses carried forward indefinitely. Either way, you need to track and report the losses properly.