Prediction markets and polls both favor Democrats to win House and Senate

Prediction markets and polling models both give Democrats the edge to win the House and the Senate in the midterm elections held on Tuesday. A Yahoo Finance analysis compared the average of three prediction markets, Kalshi, Polymarket and PredictIt, with the average of two poll-based models, one from statistician Nate Silver and one from Harvard called ElectIt. On Tuesday morning the markets put the Democrats' chance of taking the Senate at 77.3%, and the poll models put it at 80.2%.

The gap in the Senate odds has been small but steady for months, and it narrowed as Election Day approached. For the House, the two measures were also close, with the poll models slightly higher. On Monday, Polymarket's site showed a 74 percent chance of a Democratic sweep of both chambers.

Its odds for a split Congress, with Democrats taking the House and Republicans keeping the Senate, were lower. Kalshi's site also showed the Senate leaning Democratic and the House as safe for Democrats. Kalshi says trading on its midterm markets has passed its volume during the 2024 presidential election.

Tax attorney Andrew Gordon said the IRS has not yet said how such contracts are taxed.

For people who bet on elections, tax attorney Andrew Gordon wrote on X that the IRS has not said how such contracts are taxed. He describes three possible treatments. If they are treated as gambling, he says, winnings are ordinary income, and starting in 2026 only 90% of losses can be deducted, and only if you itemize.

In his example of $20,000 won and $20,000 lost, gambling treatment means tax on $2,000. Under capital gains treatment, he says, that same year "is a wash."