The legal framework
Prediction markets in the US are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC). A licensed entity called a Designated Contract Market (DCM) can list "event contracts" — binary derivatives that pay out based on real-world outcomes.
Because event contracts are federally regulated commodities, federal preemption generally overrides state gambling statutes. Texas Penal Code Chapter 47 (the state's gambling law) is not the controlling framework for CFTC-regulated activity.
The Kalshi court win
In October 2024, the U.S. Court of Appeals for the D.C. Circuit ruled in Kalshi's favor in its dispute with the CFTC over election contracts. The decision affirmed that event contracts on elections are a legitimate regulated product. Several states have since sent cease-and-desist letters that Kalshi is contesting, citing federal preemption.
Texas has not moved against Kalshi or Polymarket.
Taxes for Texans
Texas has no state income tax — a real advantage for active traders. Federal income tax still applies to profits, and exchanges issue 1099 forms above IRS thresholds. Event contracts on a CFTC-regulated DCM may qualify for Section 1256 treatment (60/40 long/short-term capital gains split); consult a tax professional.
How to start (5 minutes)
- Pick a venue. Most Texans start with Kalshi.
- Sign up with a US ID and a Texas address. Standard KYC.
- Fund with ACH from any Texas bank, or debit card.
- Browse markets — sports, weather, politics, economics.
- Buy YES or NO between $0.01 and $0.99. Hold to resolution or sell early.
This article is informational, not legal or tax advice. Laws and platform availability change — verify with the platform and a qualified professional before trading.