Americans using prediction markets to bet on the World Cup may face a lighter tax burden than peers wagering through sportsbooks thanks to tax breaks aimed at investments.
While the tax rules governing gambling are clear, the rise of prediction market bets – which are structured as investments – injects fresh uncertainty into how wagers are taxed.
The crux of the issue is whether the payouts from these prediction market bets are considered gambling, like wagers placed in sportsbooks and betting apps, or proceeds from financial instruments. The answer has major implications since US tax law gives preferential treatment to investment income while penalizing gambling. Treating prediction market bets like investments allows taxpayers to fully deduct losses and, under the most aggressive strategy, apply a lower tax rate. Though neither approach is without risk.
Supporters of more favorable tax treatment argue prediction markets differ from traditional sportsbooks in ways that extend beyond branding. Rather than placing wagers with bookmakers, traders buy and sell standardized event contracts, with trades cleared through market infrastructure designed for financial products.
Critics counter that the underlying economics remain the same: Participants risk money on uncertain outcomes in hopes of payouts. They argue courts and the Internal Revenue Service have historically looked beyond legal structure when deciding whether an activity amounts to gambling.
