Only if you itemize rather than taking the standard deduction!
For example, suppose you purchase a binary contract that pays $1 if an event occurs (and $0 if it doesn’t) and you believe there’s a 50% chance of the event. If you win, you receive $1 in gross winnings. With a 30% marginal tax rate and without itemizing, you’d pay tax on the full $1—leaving you with a net of $0.70. Given that you paid some amount x for the contract, your net gain on a win is $0.70−x, while a loss means you lose the entire x.
To break even, the expected value of the bet must be zero:
0.5×(0.70−x)+0.5×(−x)=0
This simplifies to:
0.35−x=0⟹x=0.35
Thus, if you believe the event is 50% likely (and considering only taxation, not other factors like transaction fees or opportunity costs), you would only gain if you paid under $0.35 for the contract.
Only if you itemize rather than taking the standard deduction!
For example, suppose you purchase a binary contract that pays $1 if an event occurs (and $0 if it doesn’t) and you believe there’s a 50% chance of the event. If you win, you receive $1 in gross winnings. With a 30% marginal tax rate and without itemizing, you’d pay tax on the full $1—leaving you with a net of $0.70. Given that you paid some amount x for the contract, your net gain on a win is $0.70−x, while a loss means you lose the entire x.
To break even, the expected value of the bet must be zero:
0.5×(0.70−x)+0.5×(−x)=0
This simplifies to:
0.35−x=0⟹x=0.35
Thus, if you believe the event is 50% likely (and considering only taxation, not other factors like transaction fees or opportunity costs), you would only gain if you paid under $0.35 for the contract.