Starting January 1, 2026, millions of Americans who gamble will owe federal taxes on money they never actually kept. A provision buried in President Trump’s sweeping tax and spending bill caps gambling loss deductions at 90% of winnings, creating what industry groups call “phantom income” taxation that hits even gamblers who break even or lose money for the year.
The change reverses decades of tax policy that allowed gamblers to offset 100% of their losses against winnings, meaning they paid tax only on net gains. Now, 10% of all gambling winnings remain taxable regardless of losses. The Joint Committee on Taxation projects the rule will raise over $1.1 billion over the next decade, with most of that burden falling on professional gamblers and high-stakes players who itemize deductions.
How the new gambling tax works
Under prior IRS rules, gambling winnings counted as taxable income, but losses could be deducted as itemized deductions up to the full amount of winnings. A bettor who won $5,000 and lost $5,000 in a year paid zero tax on gambling activity because the two amounts canceled out.
Starting with 2026 tax returns filed in 2027, that same bettor can only deduct $4,500—90% of the $5,000 in losses. The remaining $500 becomes taxable income, even though the gambler broke even. For someone in the 24% federal tax bracket, that means a $120 tax bill on money they never pocketed.
The math gets worse for gamblers who lose more than they win. Someone who wins $5,000 but loses $5,200—a net loss of $200—can still only deduct $4,500. They’ll owe federal tax on $500 of “phantom income” despite ending the year down $200. In the 22% bracket, that’s a $110 tax bill on top of actual gambling losses.
The rule applies across all forms of gambling: sports betting, casino games, slots, lotteries, horse racing, raffles, and even game show prizes. Online sports betting, which has exploded since the 2018 Supreme Court decision allowing states to legalize it, will be particularly affected as digital platforms generate detailed win-loss records that make enforcement easier.
Industry calls it uniquely punitive
The American Gaming Association, which represents casinos and sportsbooks, has criticized the provision as fundamentally unfair. “This uniquely penalizes gambling relative to other business and investment activities because it taxes losses,” the trade group said in statements following the bill’s passage.
Jason Robins, CEO of DraftKings, questioned the logic in a December interview. “Why should taxpayers pay income tax on something that’s not actually income if they cannot deduct all their losses?” Robins said. His company and competitors worry the effective 10% federal surcharge on top of the house edge will drive bettors to reduce volume or move to offshore platforms.
Tax policy experts say the rule breaks from standard investment treatment. Stock traders can deduct 100% of capital losses against capital gains. Business owners deduct 100% of legitimate expenses against revenue. The 90% gambling cap creates a category where the IRS taxes gross receipts rather than net income—a departure industry groups argue makes no economic sense.
Professional sports bettors face especially harsh math. The typical bookmaker margin runs 4-5% on most bets. Adding an effective 10% IRS rate means even skilled bettors who beat the closing line will struggle to show profit after taxes. Several professional gambling organizations have told members to consider reducing U.S. wagering or relocating operations.
Nevada lawmakers push back hard
Rep. Dina Titus, a Nevada Democrat whose district includes the Las Vegas Strip, introduced the FAIR BET Act within weeks of the tax bill’s passage. The legislation would restore the 100% loss offset, returning to pre-2026 treatment.
“This policy will have significant and harmful consequences,” Titus said in a statement. “It will unfairly burden both professional and casual gamblers and inevitably drive players toward offshore and unregulated markets where consumer protections are non-existent.”
Titus secured 22 bipartisan co-sponsors, including Republicans from gaming states like Nevada and New Jersey. She pushed House leadership to add the bill to the legislative calendar before year-end 2025, but it remains stalled in the House Ways and Means Committee with no floor vote scheduled.
Rep. Jason Smith, the Missouri Republican who chairs Ways and Means and supported the broader tax package, has called the gambling provision a “mistake” in conversations with industry groups, according to multiple reports. Smith indicated openness to a fix but has not committed to a timeline for committee action.
President Trump added to the confusion in December when asked about gambling taxes during a press availability on Air Force One. “I haven’t been asked that question in a long time. No tax on gambling? We have no tax on tips, we have no tax on Social Security, we have no tax on overtime. No tax on gambling winnings? I don’t know about that. I’m going to have to think about that,” Trump said.
The comments came after a rally at Mount Airy Casino Resort in Pennsylvania, a key swing state where Trump campaigned on eliminating taxes on tips and overtime. Whether he would support eliminating all gambling taxes—which would cost far more than the $1.1 billion the current rule raises—remains unclear.
Enforcement already ramping up
The IRS has increased scrutiny of gambling income in recent years, particularly for taxpayers earning over $100,000 and those with online betting activity. A 2024 Treasury Inspector General for Tax Administration audit found that weak enforcement led to approximately $1.4 billion in uncollected gambling taxes between 2018 and 2020.
Despite overall audit rates declining, gambling income remains a targeted enforcement area. The IRS stresses that taxpayers must maintain detailed records—betting slips, casino statements, online account histories—to substantiate loss deductions. Under the new rule, those records become even more critical since only 90% of documented losses provide tax benefit.
Online sportsbooks and casinos generate automatic transaction records that make tracking easier than the old days of cash casino chips and paper racing forms. Most major platforms now provide year-end tax statements showing total wins and losses, though the statements don’t calculate the 90% limitation—that falls to taxpayers and their preparers.
Tax professionals expect confusion during the 2027 filing season when 2026 returns come due. Many casual gamblers who previously broke even or showed small losses may face unexpected tax bills. The standard deduction for 2026 is $15,000 for single filers and $30,000 for married couples filing jointly, meaning only itemizers can claim gambling loss deductions at all.
Who gets hit hardest
While the rule technically applies to any taxpayer who itemizes gambling losses, revenue projections suggest the burden falls heavily on high-wealth and professional gamblers. Casual players who stay under the standard deduction threshold won’t itemize gambling losses anyway, so the 90% cap doesn’t affect them—they’ll simply report all gambling winnings as income with no offset.
Professional gamblers who report gambling as a business on Schedule C face different rules. They can still deduct 100% of wagers as business expenses, but they must meet strict IRS tests showing gambling is their primary income source and conducted in a businesslike manner. Most recreational players, even frequent ones, don’t qualify for Schedule C treatment.
The middle group—serious recreational players who gamble enough to itemize but don’t meet professional standards—faces the full impact. A bettor who wagers $100,000 across the year, wins $48,000 and loses $52,000 for a net loss of $4,000, can only deduct $43,200 under the new rule. They’ll owe federal tax on $4,800 of phantom income despite losing money, plus face state taxes in most jurisdictions.
Sports bettors who chase bonuses and promotions face particularly complex math. Many online sportsbooks offer deposit matches and free bets that count as taxable winnings when used, even though the promotional value doesn’t represent cash the bettor can withdraw. The 90% cap means even bonus hunters who carefully manage risk may owe taxes on promotional winnings they cycled back into required playthrough.
States watch federal changes closely
Most states with income taxes follow federal treatment of gambling winnings and losses, though some have their own rules. The 90% federal cap may or may not flow through to state returns depending on how state legislatures respond. Several gaming states are considering legislation to maintain 100% loss offsets at the state level even if federal rules change.
Nevada, which has no state income tax, won’t directly affect residents on this issue. But Nevada lawmakers worry the federal change will reduce overall gambling volume as bettors face higher effective tax rates. The state’s casino and sports betting industries contribute over $1 billion annually to state coffers through gaming taxes and licensing fees.
New Jersey, Pennsylvania, and Michigan—three states with large legal sports betting markets—all have state income taxes that generally follow federal gambling treatment. Lawmakers in those states are watching how the FAIR BET Act progresses before deciding whether to decouple state rules from federal.
What gamblers should do now
Tax professionals advise gamblers to maintain meticulous records for 2026 and beyond. Save all betting slips, casino statements, and online account records. Many online platforms allow users to download full transaction histories—do this regularly rather than waiting until tax time.
For casual gamblers who previously broke even or showed small net wins, run the numbers to see if itemizing makes sense under the new rules. The higher standard deduction means many taxpayers won’t benefit from itemizing gambling losses at all, in which case the 90% cap becomes irrelevant—they’ll simply report all winnings as income.
Serious recreational players should consider whether their gambling activity could qualify for Schedule C business treatment, which preserves the 100% deduction. This requires demonstrating gambling is conducted in a businesslike manner with the primary intent of making profit, not recreation. The IRS applies strict tests, and claiming business treatment without meeting the standards invites audit risk.
Professional gamblers and high-volume players may want to consult tax attorneys about strategies to minimize phantom income exposure. Some options include shifting activity to non-taxable forms of gambling where available, restructuring betting patterns to reduce gross wins while maintaining net results, or in extreme cases, relocating to jurisdictions with more favorable treatment.
Legislative outlook remains uncertain
The FAIR BET Act faces an uphill battle despite bipartisan support. Tax legislation rarely moves quickly, and the bill competes with dozens of other proposals seeking Ways and Means Committee attention. House leadership has given no indication the gambling tax fix ranks among top priorities for 2026.
President Trump’s comments about potentially eliminating all gambling taxes complicate the picture. If the administration pushes for full elimination, that could either help the FAIR BET Act by creating momentum for gambling tax reform, or hurt it by making a simple restoration of the 100% offset seem insufficient.
Industry groups continue lobbying for change, but they face a tough sell. The $1.1 billion revenue estimate means any fix requires finding offsetting revenue elsewhere or accepting a larger deficit. In a closely divided Congress, revenue-losing bills rarely advance without strong political pressure.
For now, gamblers should plan on the 90% rule staying in effect for 2026. File with the assumption that only 90% of documented losses can offset gambling winnings. Keep detailed records in case rules change mid-year or retroactively, though retroactive tax changes are rare.
The 2027 filing season will provide the first real test of how the rule affects taxpayer behavior and IRS enforcement. If revenue falls short of projections because gamblers reduce volume or shift to offshore platforms, that could strengthen arguments for repeal. If enforcement proves difficult or generates significant taxpayer confusion, that too might push Congress toward a fix.
Until then, the message is clear: starting in 2026, breaking even at gambling isn’t enough to avoid a tax bill.