How Are Event Contracts Taxed? 60/40 or Not

How are event contracts taxed? As of October 2026 there is no settled answer. A yes or no contract that pays $1 if a stated event occurs and $0 if it does not has no dedicated section in the Internal Revenue Code, no final regulation, and no published ruling written for it. Three treatments are each defensible on the text of existing law, they produce very different tax bills on the same trade, and this page is educational rather than tax advice.

How are event contracts taxed when no category fits?

An event contract is a fully collateralized claim on a stated outcome. It settles at $1 per contract if the outcome occurs and at $0 if it does not, and the resolution mechanics are covered in how event contracts settle. Nothing is borrowed and nothing is delivered. The most a buyer can lose is the premium paid.

The tax code has no category built for that payoff. It has categories for securities, for commodity futures, for listed options, and for wagers, all written long before a binary outcome market was listed on a US exchange. So the taxation question is really a classification question: which existing box does the contract fall into? That is where the disagreement sits, and the three boxes below are the live candidates.

The candidate treatments, side by side

Section 1256: the 60/40 split and a year-end mark

Section 1256 covers a closed list of instruments: regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts. Anything on that list gets two rules. Gain or loss is split 60 percent long term and 40 percent short term regardless of holding period, including a position opened and closed within the same hour. And every open position is marked to market on the last business day of the tax year, treated as sold at fair value that day, with the gain or loss recognized then.

That second rule is the one filers find surprising. Tax arrives on a position still held, with no sale and no cash raised. Reporting runs through Form 6781, which carries the split to Schedule D. why index options are taxed 60/40 walks the Section 1256 machinery end to end on an instrument where the answer is settled. Reading it first is worth the detour, since the pivot there is the same pivot here.

Ordinary income

If an event contract sits outside the Section 1256 list and the claim is not treated as a capital asset, gain is ordinary income, reported as other income on Schedule 1 of Form 1040. Ordinary treatment removes the 60/40 preference entirely, so gain is taxed at the filer's marginal rate on the full amount. It also sits outside the capital loss framework, which cuts in both directions: no $3,000 annual cap on net losses against other income, and no capital loss carryforward to later years either. Whether an ordinary loss on these contracts is deductible at all, and against what, turns on the same character analysis that produced the ordinary label in the first place.

Wagering treatment under Section 165(d)

If a contract is a wagering transaction, Section 165(d) governs the losses. Gains are ordinary income. Losses are allowed only to the extent of gains from wagering transactions, they are an itemized deduction on Schedule A, and a filer taking the standard deduction deducts none of them. Excess wagering losses do not carry forward. A 2025 amendment to Section 165(d), effective for tax years beginning after December 31, 2025, caps the deduction at 90 percent of wagering losses, still limited by wagering gains.

This branch has the sharpest consequence for an active account. A year of offsetting wins and losses that nets to roughly zero economically does not net to zero under these rules, since the loss side is trimmed to 90 percent and bounded by the win side before anything reaches the return.

What the three branches do to the same trade

The three branches are not small variations in wording. The panel below runs one $10,000 gain and one $10,000 loss through each of them with the filer held constant: a single filer at the 37 percent top ordinary rate and the 20 percent top long term capital gains rate in effect as of October 2026, with no offsetting capital gains, no wagering gains, state tax and the net investment income tax left out. The statutory rates are the inputs; the dollar figures are arithmetic on those rates rather than observed outcomes.

SELECT
    treatment,
    ROUND(10000 * gain_rate)        AS tax_on_10k_gain_usd,
    ROUND(10000 * loss_allowed_pct) AS deductible_part_of_10k_loss_usd
FROM
(
    SELECT
        'Section 1256 60/40'              AS treatment,
        (0.60 * 0.20) + (0.40 * 0.37)     AS gain_rate,
        0.30                              AS loss_allowed_pct,
        1                                 AS branch_order
    UNION ALL
    SELECT 'Ordinary income',          0.37, 1.00, 2
    UNION ALL
    SELECT 'Wagering, Section 165(d)', 0.37, 0.00, 3
)
ORDER BY branch_order

Data notes on the panel. The first row blends 60 percent of the gain at 20 percent with 40 percent at 37 percent, a 26.8 percent effective rate, which is why the 1256 branch carries the lightest number in the gain column. The loss column shows only what reaches the return in the loss year itself. A capital loss under the 1256 branch is limited to $3,000 against other income with the remainder carried forward, and the three year carryback of 1256 losses against prior 1256 gains is not modeled here. The ordinary row assumes the loss is deductible in full, which is precisely the point the character analysis has to decide. The wagering row has no wagering gains to absorb the loss, leaving nothing deductible under Section 165(d) before the 90 percent trim even applies. Change the bracket or add offsetting gains and every figure moves.

Why exchange designation is the pivot

Section 1256(g)(7) defines a qualified board or exchange: a national securities exchange registered with the SEC, a domestic board of trade designated as a contract market by the CFTC, or any other market the Treasury designates. Venue is the first gate and it is a bright line. A contract listed on a CFTC designated contract market clears it. A contract bought on an offshore venue or an on-chain market does not, and the Section 1256 branch closes there without any further analysis.

Clearing the venue gate is not sufficient. The instrument itself still has to match a definition on the list. A regulated futures contract under 1256(g)(1) is one marked to market under a system of daily variation margin and traded on or subject to the rules of a qualified board or exchange. A nonequity option under 1256(g)(3) is a listed option that is not an equity option, where a listed option means one traded on or subject to the rules of such an exchange. Two separate questions decide this branch: where the contract trades, and what the contract is. event contracts versus stock options sets the two instruments side by side on the mechanics that the definitions turn on.

Why a $0 or $1 payoff strains the definitions

A fully collateralized binary contract does not behave like a futures position under daily variation margin. The buyer posts the full premium up front and the maximum loss is fixed at the outset, the structure laid out in event contract collateral and max loss. No daily mark can call for more money, so the margining language inside the regulated futures definition fits awkwardly at best.

The option definition is not a clean fit either. A listed option has a strike and a continuously variable payoff against an underlying price. A yes or no contract has no strike in that sense, and its quoted price behaves as a probability estimate for the stated outcome, the framing in event contract prices as probabilities. Economically, a binary payoff is the limiting case of a very tight call spread, and a tight spread built from two listed index options would be two nonequity options. The event contract is a single instrument rather than two legs, so the analogy explains the payoff shape without settling the classification.

Which form arrives, and what it does not settle

What a filer may receive from the venue:

• Form 1099-B, the broker information return. Its Section 1256 contracts line reports aggregate profit or loss for the year, so a 1099-B that populates it is recording the venue's own 1256 position.
• Form 1099-MISC, reporting net gains as other income, consistent with ordinary treatment.
• Form W-2G, the wagering information return.
• Nothing at all. An offshore or on-chain venue is often not a US payor and files no information return. The income is reportable either way.

An information return records the issuer's view of the transaction. It does not determine the correct treatment, and the IRS is not bound by the box the venue picked. A filer whose return departs from the form keeps the records and the reasoning that support the position. For primary sources, go to the text of Section 1256 and Section 165(d), the instructions to Form 6781, and the venue's own tax page, which is dated and names the form it issues.

How to tell whether this has moved

This page states the position as of October 2, 2026. Four developments would change it: a regulation or published ruling addressing event contracts under Section 1256, Treasury designating a new market as a qualified board or exchange, a venue switching the information return it issues, or legislation naming these contracts directly. Anything of that kind dated after October 2026 outranks what is written above.

FAQ

Are event contracts taxed 60/40 like index options?

Unsettled as of October 2026. The 60/40 split applies only to instruments on the Section 1256 list, and whether a binary contract matches the regulated futures contract or nonequity option definitions has not been resolved for these products by regulation or published ruling.

Do I owe tax on an event contract I still hold at year end?

Only under the Section 1256 branch, which marks open positions to market on the last business day of the tax year and recognizes the unrealized gain or loss then. Under ordinary or wagering treatment, nothing is recognized until the contract resolves or is closed.

What tax form do event contract venues send?

It varies by venue. US venues have used Form 1099-B and Form 1099-MISC, and an offshore or on-chain venue may send nothing. The venue's own dated tax page is the primary source for which form it issues.

Can event contract losses offset my other income?

The answer differs by branch, which is why the classification matters more than the arithmetic. Under wagering treatment, losses are itemized, capped by wagering gains, and trimmed to 90 percent for tax years beginning after 2025. Under capital treatment, the $3,000 annual limit and the carryforward rules apply instead.

Does receiving a 1099 settle the treatment?

No. A 1099 is an information return stating the issuer's position. The correct character of the gain or loss comes from the statute applied to the instrument, and a filer may report a treatment that differs from the form, with records to support it.

The tax classification stays open. The settlement mechanics do not, and a contract's path from quoted price to $0 or $1 is something you can trace question by question in plain English on the Strasmore terminal.