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 policy 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.
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This article originally appeared here and was republished with permission.
