Betting markets predict Democratic sweep of Congress

Americans heading to the polls on Tuesday face a distinct financial outcome if they wagered on the midterms. Online prediction platforms are pricing in a strong Democratic victory. A win or loss on these digital bets will now trigger a tax calculation that many users have not yet considered.

As of Monday afternoon, the Polymarket website displayed a 74 percent probability that Democrats would secure control of both the House and the Senate. The platform assigned a 23 percent chance to a split result where Democrats take the House while Republicans keep the Senate. A Republican sweep of both chambers stood at 6 percent, and a scenario where Republicans win the House but lose the Senate was priced at just 2 percent.

The Kalshi platform showed similar figures early Monday. That site listed the Senate at 74 percent leaning Democratic. The House of Representatives was marked as 94 percent safe for the Democratic party. These figures reflect the aggregated wagers of users betting on specific election outcomes.

Several individual Senate races show specific Democratic advantages in the betting data. In Maine, Democrat Troy Jackson holds a 73 percent chance to unseat Republican Susan Collins on Polymarket. Kalshi places Jackson’s odds at 72 percent. In Michigan, Democrat Abdul El-Sayed has a 78 percent probability of defeating Republican Mike Rogers on both platforms. These odds persist despite the endorsement of El-Sayed by his primary rival, Representative Haley Stevens.

In Texas, Democrat James Talarico is favored to beat Republican Ken Paxton, with odds ranging from 74 to 75 percent across the two major markets. In Ohio, Democrat Sherrod Brown has a 71 percent chance of reclaiming his former Senate seat against Republican Jon Husted, according to the posted data on Monday.

Tax attorney Andrew Gordon noted on X that the IRS has not clarified how to treat income from these contracts. This ambiguity could alter a bettor's tax bill by thousands of dollars. Gordon outlined three potential ways the IRS might classify these wagers. Under a gambling classification, winnings count as ordinary income. Starting in 2026, bettors can only deduct 90 percent of their losses, and only if they itemize deductions.

A second possibility is classification as capital gains. In this scenario, losses offset gains and can reduce up to 3,000 dollars of other income. The third option involves Section 1256 contracts, which are less likely for event contracts. This method splits taxation into 60 percent long-term and 40 percent short-term rates regardless of holding period.

Gordon provided a hypothetical example to illustrate the financial impact. If a bettor wins 20,000 dollars and loses 20,000 dollars on different contracts, they break even in cash. However, if treated as gambling, only 18,000 dollars of losses count. The bettor would owe tax on 2,000 dollars of income they did not actually keep. If the bettor takes the standard deduction, the full 20,000 dollars in winnings remains taxable with no offset for losses. Under the capital gains treatment, the same year results in no net tax change.