US Gambling Tax Changes 2026: The New 90% Loss Deduction Rule Explained

What Changed

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. Among its many provisions is a significant change to how gambling losses are treated for tax purposes.

Before 2026: You could deduct gambling losses up to the amount of your winnings. If you won $10,000 and lost $10,000, you owed tax on $0 of net gambling income.

Starting 2026: You can only deduct 90% of your gambling losses against winnings. That same scenario now means you owe tax on $1,000 of "phantom income."

This is a major shift that affects every American who gambles, from casual lottery players to professional sports bettors.

How the 90% Rule Works

The math is straightforward but the implications are painful.

Example 1: Break-even gambler

• 2025: Win $10,000, lose $10,000 → taxable income: $0
• 2026: Win $10,000, lose $10,000 → deduct $9,000 (90%) → taxable income: $1,000

Example 2: Net loser

• 2025: Win $7,500, lose $10,000 → deduct $7,500 → taxable income: $0
• 2026: Win $7,500, lose $10,000 → deduct $6,750 (90% of $7,500) → taxable income: $750

Example 3: Scratch-off player

• Buy $100 in scratch-offs, win $100 back
• 2025: Net $0, taxable income: $0
• 2026: Win $100, deduct $90 → taxable income: $10

Yes, you read that last one right. You can break perfectly even and still owe the government money.

"Phantom Income" Explained

The American Gaming Association coined the term "phantom income" to describe this situation. You're paying taxes on income that doesn't exist in any practical sense.

If you lose $5,000 gambling over a year and win $4,000 back, you lost $1,000 overall. Under the new rule, you can only deduct $3,600 (90% of $4,000), leaving $400 in taxable "income" despite being down $1,000 in reality.

The AGA and industry stakeholders argue this treatment is "uniquely penalizing" compared to other activities. Businesses can deduct 100% of ordinary expenses. Investors can deduct losses against gains. Only gamblers face this 90% cap.

Who This Affects

Recreational Bettors

The impact on casual bettors depends on volume and record-keeping. If you bet small amounts and don't itemize deductions, you might not notice the change directly (you likely weren't deducting losses anyway).

But if you're a regular bettor who itemizes, the math just got worse. Every winning session now creates slightly more taxable income than before.

Professional Gamblers

Professionals are hit hardest. A pro who grinds out a 2-3% edge generates substantial gross wins and losses over a year. The 10% non-deductible portion of losses can represent a significant tax liability.

Example: A professional bettor has $500,000 in winning wagers and $480,000 in losing wagers over the year. Net profit: $20,000.

• 2025: Taxable income = $20,000
• 2026: Can only deduct $432,000 (90% of $480,000) against $500,000 → taxable income = $68,000

That's $48,000 in "phantom income" on top of the $20,000 actually earned.

Casino Visitors

Even recreational casino-goers feel this. Slot players especially, since machines generate constant small wins and losses. A session that ends break-even might still produce W-2G forms for jackpots hit along the way.

Daily Fantasy Sports Players

DFS contests generate 1099s for net winnings. Players who have high volume with modest net profits will face increased tax liability under the new rules.

The Reporting Threshold Change

One piece of good news: the OBBBA also raised the IRS reporting threshold for slot machine winnings from $600 to $2,000.

This means fewer automatic W-2G forms interrupting your play, and fewer small wins triggering reporting requirements. It doesn't change your tax obligation (you're still supposed to report all gambling income), but it reduces paperwork.

Legislative Efforts to Repeal

The law isn't universally popular, even among Republicans who passed it. Several bipartisan efforts aim to restore the 100% deduction:

FULL HOUSE Act (Senate): Introduced by Senators Catherine Cortez Masto and Jacky Rosen (D-NV) along with Ted Cruz (R-TX) and Bill Hagerty (R-TN). Would restore full deductibility for professional gamblers.

FAIR Bet Act (House): Introduced by Rep. Dina Titus (D-NV) with bipartisan support. Would revert deductions to 100% for all gamblers.

Nevada's delegation is particularly active since the state's economy depends heavily on gaming. Whether these efforts succeed depends on broader legislative priorities and budget considerations.

What You Can Do

Keep Meticulous Records

Detailed records of wins and losses are now even more important. Document every session with:

• Date and location
• Type of gambling
• Amount won/lost
• Supporting documentation (receipts, account statements)

Good records protect you in an audit and ensure you claim every deductible dollar you're entitled to.

Consider Your Betting Volume

The math now favors lower volume with higher selectivity. Placing 1,000 bets with a 52% win rate generates more gross wins (and more phantom income) than placing 100 bets at the same rate.

This doesn't mean you should bet less if you have an edge. But it does mean the tax cost of each marginal bet increased.

Track Net Position by Year

Pay attention to your cumulative position as December approaches. If you're running hot, consider whether continued betting will push you into a higher tax situation than stopping.

Consult a Tax Professional

Gambling taxes were already complex. The new rules add another layer. A CPA familiar with gambling taxation can help you navigate the changes and optimize your approach.

State Tax Implications

State taxes vary widely:

• Some states (Nevada, Florida, Texas) have no state income tax
• Some states allow gambling loss deductions mirroring federal rules
• Some states don't allow any gambling loss deductions

The federal change doesn't directly affect state rules, but if your state follows federal treatment, the 90% cap may flow through.

The Bigger Picture

The Joint Committee on Taxation estimates this change will generate over $1.1 billion in federal revenue over the next decade. That's the money coming out of gamblers' pockets.

For context, Americans wagered over $120 billion legally on sports in 2024 alone. Add casino gambling, lottery, and other forms, and the total handle is massive. Even a small tax increase on that volume produces significant revenue.

Whether you view this as a reasonable revenue measure or an unfair penalty on gamblers depends on your perspective. What's certain is that the cost of gambling just went up for everyone.

Key Takeaways

• Starting 2026, you can only deduct 90% of gambling losses against winnings
• This creates "phantom income" where you owe tax despite breaking even or losing
• Professional gamblers are hit hardest due to high volume
• Slot reporting threshold increased from $600 to $2,000 (small positive)
• Bipartisan repeal efforts are underway but uncertain
• Keep detailed records and consider consulting a tax professional
• The change will generate $1.1+ billion in federal revenue over 10 years

Sources:

• Taxes for Expats - Gambling Tax Changes
• Bookmakers Review - US Gambling Tax Changes
• Kiplinger - Trump Eyes Gambling Tax Change