Legacy Law Blog

When it comes to gambling, everyone knows the “house” always wins, right?

Well, following passage of the Trump administration’s One Big Beautiful Bill Act (OBBBA) on July 4 the U.S. House of Representatives helped to enact significant changes to the way U.S. gamblers can deduct their losses when they file their federal income tax returns.

Here’s what you need to know about this change and its implications for both casual and professional gamblers.

Key Change: The 90% Deduction Cap

The OBBBA eliminated the ability of taxpayers to take a 100% deduction for their gambling losses against any income from their gambling winning for the year.

• Effective Date: The change applies to tax years starting Jan. 1, 2026.
• Old Rule: Previously, gamblers could deduct up to 100% of their gambling losses—but only up to the amount of their winnings. For example, if someone had $100,000 in winnings and $100,000 in losses, they could deduct the full $100,000 in losses and pay no tax on gambling income.
• OBBBA Rule: Gamblers can now deduct only 90% of their gambling losses against their winnings. Using the earlier example, if you win $100,000 and lose $100,000, you would be able to deduct only $90,000 of your losses. The remaining $10,000 would be treated as taxable income—even though, in reality, you broke even for the year.

Broader Implications

• Tax on Phantom Income: Gamblers may now owe taxes on money they never truly gained. If your winnings and losses are equal, or if you lose more than you win, you’ll still owe taxes on 10% of your winnings, creating a liability even in years you technically lost or broke even.
• Professional Gamblers: High-volume or professional gamblers will feel this effect most acutely, but the rule applies to casual bettors as well.
• Documentation Remains Required: To claim any deduction, you must continue to keep accurate records of your gambling activity and itemize your deductions on your tax return.

Failure to properly document your annual winnings and losses can lead to substantial issues if you are audited by the IRS in the future.

Industry and Political Response

• Widespread Opposition: Casino operators, gambling organizations and many lawmakers have heavily criticized the change included in the OBBBA. There is bipartisan support for bills aimed at restoring the full 100% deduction. One such bill, the FAIR BET Act, was introduced soon after OBBBA’s passage, but efforts to repeal the new limit have so far stalled in Congress.
• Potential for Future Change: The backlash and ongoing debate suggest the gambling loss deduction cap could still be overturned or modified in future tax legislation, but as of now, the 90% cap is set to take effect for 2026 and beyond.

What Gamblers Should do?

• Plan for Extra Tax Liability: Adjust your strategy and finances to account for the fact that you may owe more in federal taxes starting with your 2026 return.
• Keep Thorough Records: Maintain detailed documentation (receipts, logbooks, statements) of all gambling activities to substantiate any deductions you claim.
• Watch for Legislative Updates: Stay alert to news around the gambling loss deduction cap, as the possibility of full restoration is a live political issue.

Bottom Line

The OBBBA reduces the deductibility of gambling losses from 100% to 90%. This means more gamblers may pay taxes—even when they break even or lose overall—starting in 2026.

The rule increases the odds of “phantom income” tax bills and has triggered strong pushback from both the industry and lawmakers. Taxpayers would do well to continue monitoring for any changes to this deduction in Congress through the remainder of the legislative session.