Revised sports enthusiasts who engage in betting on games or frequent casinos may find the new tax legislation less than attractive
Gambling Tax Changes: What You Need to Know
Starting in 2026, a significant change is coming to the way gambling winnings are taxed in the United States. The Internal Revenue Service (IRS) will limit the deduction of gambling losses to 90% of gambling winnings, instead of the current 100% deduction up to winnings. This change means that taxpayers can no longer fully offset their winnings with losses, potentially causing some to report taxable income even when their actual gambling results break even.
How this affects taxable income
Under the new law, a gambler who wins $500,000 but loses $500,000 would report $50,000 in taxable income on paper, despite breaking even financially. This essentially creates "phantom income"—income reported for tax purposes even though the gambler’s net financial gain is zero.
This change will particularly impact professional gamblers and high-volume bettors who itemize deductions and have large, roughly even betting activity. Casual gamblers, on the other hand, will not be able to claim their losses as a deduction.
Rules for Casual Gamblers
Casual gamblers who take the standard deduction should group their gambling activities into sessions, net wins against losses within each session, add up the net-income sessions, and report this amount for their gambling winnings on Form 1040, Schedule 1. Those who itemize their deductions should follow the same steps but also add up the net-loss sessions and report the amount of this loss as "other itemized deductions" on Form 1040, Schedule A.
The tax rules for casual gamblers are complex, with rules that apply to winnings from lotteries, raffles, horse races, casinos, online betting, cash winnings, and the fair market value of prizes.
Impact on Tax Brackets
The change in tax law will increase the taxable income of gamblers by the amount of their losses that cannot be deducted, potentially pushing them into a higher income tax bracket.
Legislation and Future Changes
Less than a month after the bill was signed into law, Republicans and Democrats drafted legislation to undo this tax change. However, passing legislation to undo the tax change on gambling losses might be difficult. The nonpartisan Congressional Budget Office estimates that the tax change on gambling losses will raise more than $1.1 billion over a decade.
For the tax year 2025, gamblers can deduct the full amount of their losses. In 2026 and beyond, they can only deduct 90% of their losses. The standard deduction for 2025 has been made permanent and has received an extra inflation boost. Thus, the standard deduction for 2025 is higher than in previous years. The standard deduction for married filing jointly filers is $31,500, for single filers and those married filing separately is $15,750, and for head of household filers is $23,625.
In conclusion, the changes in gambling tax laws will have a significant impact on taxpayers who gamble, particularly professional gamblers and high-volume bettors. It is essential to understand these changes and plan accordingly to avoid any unexpected tax burdens. Keeping records of gambling activities is highly recommended for all gamblers, as it can help in accurately reporting winnings and losses and potentially reduce the tax burden.
- For professional gamblers and high-volume bettors who itemize their deductions, the new tax law may significantly increase their taxable income, as they can no longer fully offset their winnings with losses, a change that might push them into higher income tax brackets.
- In the realm of finance and business, gambling activities require careful consideration and record-keeping, especially in light of the upcoming changes to the taxation of gambling winnings, as inaccurate reporting could result in unexpected tax burdens.
