Up through the end of 2025, taxpayers could rest easy knowing that they could offset their gambling winnings with the full amount of their losses. However, new IRS rules will significantly change how all gamblers, casual and professional, report losses. The primary change, introduced by the One Big Beautiful Bill Act (OBBBA), is a new cap that limits gambling loss deductions to 90% of winnings.
Under previous laws, taxpayers who itemized their deductions could offset 100% of their gambling winnings with their losses, effectively paying zero tax if they broke even. Beginning January 1, 2026, you can only deduct up to 90% of your total gambling losses, and this deduction still cannot exceed your total winnings for the year.
This change creates taxable income even if you have a rough night at the tables. For example, if you win $10,000 but lose $10,000, you can only deduct $9,000 on your return. This means that you will owe taxes on the remaining $1,000 of “phantom income” despite having no actual net gain. It is important to consider this when addressing any gain/loss through sports gambling apps as well as casinos. This 90% limit will significantly affect professionals filing on Schedule C since the OBBBA makes permanent the rule that combined business expenses and losses cannot exceed gambling income for the year.
One potentially positive change is an increase in the reporting threshold for certain winnings. The threshold for issuing a Form W-2G for slot machine winnings will increase from $1,200 to $2,000 in 2026. This $2,000 threshold will be adjusted annually for inflation starting in 2027. Remember that even if you don’t receive a W-2G, the IRS still considers all gambling winnings to be fully taxable income that must be reported.
Because you can no longer fully offset winnings, the IRS will likely scrutinize deductions claimed on a return. It is recommended that you keep a session-by-session log with dates, locations, and wager types. This detailed record will help you have more success in the event of an IRS audit.
There is a potential that some recently filed bills may undo this change. Bills such as the FAIR BET Act, H.R. 4304, and the WAGER Act, H.R. 4630, have been introduced to restore the 100% deduction. However, with no clear resolution of these bills, it is advised to be prepared for these changes to affect your 2026 filing.
The goal is to ensure you aren’t blindsided by a tax bill on money you already lost to the house. Given the complexity of “phantom income,” consulting a tax professional at Timberline Tax Group prior to filing your 2026 income tax return is recommended for high-volume players or for anyone planning to itemize deductions to claim gambling losses.
See: https://www.irs.gov/taxtopics/tc419
Galen Faris, EA
(303) 228-5190
Timberline Tax Group, LLC