If you're a fan of sports betting or casino gambling, you won't be a fan of the new tax law

Yahoo

3 days ago

The house always wins in gambling, and soon it could feel like Uncle Sam does too. That's because gamblers face what amounts to a tax hike beginning in 2026: They'll no longer be able to deduct the full amount of their wagering losses.
New rules included in the massive tax bill that was signed into law in July will reduce the tax deduction gamblers can claim on their losses, from 100 percent to 90 percent, starting next year.
Consider this: If a gambler wins $20,000 and loses $20,000 in the same year, this change in tax law affects how much of those losses they can deduct:
In tax year 2025, before the new rule, the taxpayer can deduct the full $20,000 in losses.
In tax year 2026 and beyond, the taxpayer can only deduct 90 percent of their losses, or $18,000.
Even though that gambler broke even, the change in tax law will increase their taxable income by $2,000 — an amount that could potentially push the taxpayer into a higher income tax bracket. Of course, the higher stakes the gambler, the more significant the tax hike will be.
But gamblers may have luck on their side: Less than one month after President Donald Trump signed the bill into law, Republicans and Democrats drafted legislation to undo this tax change.
'There is enough concern that there is a reasonable chance that this provision will be undone before it goes into effect,' says Kasey Pittman, managing director of tax services at Cherry Bekaert, an accounting and advisory firm.
That said, taxpayers shouldn't bet the house that this recent tax change will be reversed and should instead prepare for their betting income to receive a different tax treatment starting next year. Here's what you need to know.
What is the new tax rule on gambling losses?
Among the many tax-related changes included in the massive 'One Big Beautiful Bill' was a short provision outlining the 'extension and modification of limitation on wagering losses.'
The changes are a bigger deal to gamblers than the brief amount of text might suggest.
Beginning in 2026, you can only claim a deduction equal to 90 percent of your wagering losses. That will mark a change from current tax law, which allows gamblers to deduct 100 percent of losses. What won't change is that the amount of losses you are able to deduct can't exceed the amount of your gains.
Reducing the amount of claimable losses from 100 percent to 90 percent is 'detrimental' to gamblers, says Andrew L. Gradman, founder of the Law Office of Andrew L. Gradman, APC.
It's notable that Republican lawmakers are already trying to repeal this tax law change, which shows how broadly unpopular it is, he says. 'It's pure cruelty to gamblers,' Gradman says.
How to report gambling gains and losses
The tax rules for casual gamblers were already rather complex, with rules that apply to winnings from lotteries, raffles, horse races, casinos, online betting, cash winnings and the fair market value of prizes. The amount of reportable winnings depends on how you won the money, with the amount varying whether you won big at a slot machine or in a poker tournament, for example. (Here's the IRS page on gambling income and losses.)
If your gambling earnings meet certain thresholds, a payer is required to issue you a Form W-2G for those winnings that are subject to federal income tax withholding. That said, you're required to report all gambling winnings, even those that didn't necessitate a tax form.
But gambling losses are treated differently. Taxpayers can only deduct gambling losses if they itemize their deductions and keep a record of winnings and losses. What's more, the amount of losses you deduct can't be more than the amount of gambling income you reported. That means that even if you're a net loser for the year, you can only claim losses up to the amount of your winnings.
Gambling losses: Standard vs. itemized deductions
When sitting down at a blackjack table, you might not think about your income taxes. But whether you take the standard deduction or itemize your deductions actually makes a big difference, since you can only deduct your losses if you itemize.
And the massive new tax bill made permanent the much larger standard deduction created under the Tax Cuts and Jobs Act of 2017, and added an extra inflation boost for 2025. Thus, the standard deduction for 2025 is:
$15,750 for single filers and those married filing separately
$23,625 for head of household filers
$31,500 for married filing jointly filers
Learn more: Standard deduction vs. itemized deduction: Pros, cons and how to decide
With the larger standard deduction now permanent, that puts many gamblers in a predicament. For the vast majority of taxpayers, it will make more sense to take the standard deduction. But you can only deduct gambling losses if you itemize deductions, meaning that casual gamblers who take the standard deduction get 'the worst treatment' tax-wise, Gradman says.
Even though gambling income is included in their gross income, casual gamblers who take the standard deduction can't claim losses, Gradman says. 'The IRS has these folks in a ratchet: Wins are taxable, but losses don't mitigate those taxes,' he says.
In fact, the tax law discourages gamblers who take the standard deduction from tracking their losses because there's no benefit, Gradman says.
Whether or not it makes sense for a taxpayer to itemize their deductions will depend on many factors beyond wagering gains and losses, Pittman notes. And the new tax bill may encourage some taxpayers to itemize, thanks to a temporary boost in the SALT (state and local taxes) deduction limit to $40,000, from $10,000 previously.
Because of the various nuances of tax law, casual gamblers who are lower-income are already far more likely to claim the standard deduction and will continue to miss out on the opportunity to claim their losses, Pittman says. The tax law for gambling gains and losses was already difficult to navigate for tax efficiency of deductions, she adds. 'Now it's become more difficult beginning in 2026,' she says.
Meanwhile, casual gamblers who itemize their deductions are in a better position tax-wise, Gradman notes, but they still lose out with the change in tax law that reduces the amount of losses they can claim. Because gamblers will be limited to claiming only 90 percent of the amount of their losses and only up to the total amount of their gains, that will increase their taxable income, Pittman adds.
How to manage gambling winnings and losses with the tax changes
As evidenced by the outcry to this provision in the tax bill, there's reason for gamblers to be optimistic that what amounts to a tax hike on winnings could be rolled back before it takes effect in January. But passing legislation to undo prior legislation isn't as easy as it might seem, Pittman cautions.
'Those who may be affected by this legislation should be hopeful, but it's certainly not something they should count on as a certainty,' Pittman says.
Whether the intention behind the provision was to discourage gambling or to generate revenue — or a mix of both — is difficult to ascertain, but the nonpartisan Congressional Budget Office has estimated it will raise more than $1.1 billion over the course of a decade.
Gamblers should keep an eye on developments heading into 2026, while there are ways to be tax savvy when at the casino or beyond.
For casual gamblers who take the standard deduction, Gradman advises the following steps:
Group gambling activities into 'sessions,' which could be one day at the casino.
Net wins against losses within each session so you're left with net-income or net-loss sessions.
Add up the net-income sessions and report this amount for your gambling winnings on Form 1040, Schedule 1.
Ignore the net-loss sessions as they don't provide any benefit.
Casual gamblers who itemize their deductions should take the same steps 1-3 as above, Gradman says, with the following additional steps:
Add up the net-loss sessions, and report the amount of this loss as 'other itemized deductions' on Form 1040, Schedule A.
Only include total losses up to total income from income sessions.
And if you are the type of person who thinks about tax efficiencies while gambling, tax law may be a factor to consider when deciding whether to hold 'em or fold 'em at the table. That's because there are some 'perverse' incentives to continue playing and 'throw good money after bad,' Gradman says.
Finally, many gamblers rely on casinos to report the amount of their winnings to the IRS. While the new law reduces the value of losses and may make taxpayers even less motivated to keep records, there can be benefits to doing so, he adds.
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