A Major Shift in Gambling Tax Rules
Starting in 2026, the 'Big Beautiful Bill Act' introduces a significant change to how gambling losses are deducted. This guide breaks down what you need to know.
The Old vs. The New
The fundamental change is the new 90% cap on deducting gambling losses against winnings. This applies to all taxpayers, both recreational and professional.
Current Rules (Until 2026)
You can deduct gambling losses up to the full amount of your winnings. If you win $50,000 and lose $60,000, you can deduct $50,000 of your losses, resulting in $0 of taxable gambling income.
Recreational Gamblers
Deduct losses on Schedule A as an itemized deduction. You must itemize to claim the deduction.
Professional Gamblers
Report winnings and losses on Schedule C as a business. Losses can offset winnings, but cannot create a net business loss from gambling alone.
⚠️ New Rules (From 2026)
You can only deduct gambling losses up to 90% of your gambling winnings. Using the same example (win $50k, lose $60k), your maximum deduction is now $45,000 (90% of $50k). This leaves you with $5,000 of taxable income, even though you had a net loss.
Recreational & Professional
The 90% limitation applies universally. This change primarily impacts high-volume bettors and professionals who rely on offsetting near-total winnings with losses.
Interactive Impact Calculator
Enter your total annual winnings and losses to see how the new rule affects your taxable income. This tool helps visualize the financial difference between the current system and the 2026 changes.
Chart updates automatically to compare taxable income under both rules.
Filing, Risks, and Affected Taxpayers
Understanding how to report your gambling activity and who is most vulnerable to this change is crucial for proper tax planning.
Who is Most Affected?
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Professional Gamblers: Their business model often relies on small margins. Taxing 10% of gross winnings, regardless of net profit or loss, can erase profitability.
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High-Volume Sports Bettors: Bettors who churn large amounts of money (handle) will be significantly impacted, as their total winnings can be high even if their net profit is small.
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Casino High Rollers: Similar to sports bettors, high-stakes players will face a tax on phantom income, paying tax despite potentially having a net loss for the year.
Common Risks & Mistakes to Avoid
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Poor Record-Keeping: The IRS requires a detailed log of winnings and losses per session. Without it, you cannot substantiate your loss deductions. This is more important than ever.
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Ignoring the 90% Cap: Accidentally deducting 100% of losses (up to winnings) after 2026 will lead to an audit and penalties.
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Potential for Double Taxation: This rule could lead to situations where a gambler pays federal income tax on "phantom" income while also paying state income taxes on the same amounts, without the ability to fully offset losses.
How to Report: Schedule A vs. Schedule C
Recreational Gambler
(Hobby)
Winnings on Sch. 1
↓
Losses on Sch. A
↓
Must Itemize Deductions
Professional Gambler
(Business)
Gross Receipts on Sch. C
↓
Losses as Expense on Sch. C
↓
Directly Reduces Gross Income
Regardless of the form used, the new 90% limitation on loss deductions will apply to the calculation starting in tax year 2026.
Why This Change & Further Reading
Lawmakers introduced this cap primarily as a revenue-raising measure. The Joint Committee on Taxation estimated it could generate billions in additional tax revenue by taxing a portion of gross winnings that was previously offset by losses.
