One of the most debated provisions in the One Big Beautiful Bill is set to change how gambling losses are treated for tax purposes beginning in 2026.
Under the new rule, taxpayers will only be allowed to deduct up to 90 percent of their gambling losses from their total winnings on federal tax returns. This marks a significant shift from the current system, which allows losses to be deducted in full so long as they don’t exceed total winnings.
Why It Matters
To understand the impact, consider this example: a gambler wins $210,000 and loses $210,000 in the same year. Under today’s rules, they break even and owe no taxes. But starting in 2026, only $189,000 of those losses could be deducted. That leaves $21,000 treated as taxable income, even though the person didn’t actually make a profit.
This change could affect both casual gamblers and professionals alike. According to the Joint Committee on Taxation, the cap is projected to raise over $1 billion in revenue over the next decade.
The Phantom Income Problem
Critics argue that the change forces taxpayers to pay taxes on so-called “phantom income,” money that appears to be profit on paper but never actually hits their bank accounts. This concern has fueled pushback from lawmakers, industry groups, and individual taxpayers.
Lawmakers Push Back
Several members of Congress have already introduced legislation to reverse the new rule.
- The FAIR BET Act, introduced by Representatives Dina Titus and Ro Khanna, would restore the full deduction for gambling losses.
- The Full House Act, introduced in the Senate by Catherine Cortez Masto, aims to do the same. However, efforts to fast-track the legislation were blocked in early July, leaving its future uncertain.
Industry groups, including the American Gaming Association, have also voiced support for restoring the full deduction.
What Hasn’t Changed
Despite the new cap, one rule remains the same: all gambling winnings must be reported to the IRS. Losses can still be deducted, but only if you itemize your return and only up to the amount of your winnings.
The IRS also requires detailed records to claim gambling-related deductions, including receipts, tickets, or written logs with dates, locations, bet types, and amounts won or lost.
Looking Ahead
For many gamblers, this rule could create tax liabilities even when they don’t come out ahead. High-volume players may feel the change most, as even a small percentage of non-deductible losses could translate into significant taxable income.
Supporters of the cap argue it discourages excessive gambling and increases federal revenue. Opponents see it as unfair taxation on money that was never truly earned.
With repeal efforts stalled in Congress, the gambling community and tax professionals will be watching closely as the 2026 start date approaches.
More changes could still be on the table. Contact Paragon today if you have questions.
