Gambling can be exciting — but when it comes to taxes, the IRS has the upper hand. Whether you place the occasional sports bet or enjoy weekend trips to the casino, your winnings (and losses) can have serious tax implications. In addition, beginning January 1, 2026, a new law changes the way gambling losses are deducted, potentially leaving many gamblers with unexpected tax bills.
🎰 Current Rules Through 2025
For now, the rules are semi straightforward — though not favorable to the gambler:
- Winnings: All gambling winnings are fully taxable and must be reported on your tax return, whether you receive a Form W-2G.
- Losses: You may deduct gambling losses, but only as an itemized deduction and only up to the amount of your winnings.
2025 Example (assuming you already itemize deductions on schedule A):
- Win $50,000, lose $50,000 → Deduction equals $50,000 if you itemize deductions.
- Result: $0 taxable gambling income.
What If You Don't Itemize Deductions?
Let us look at this example: Joe is a single taxpayer and has $8,000 in itemized deductions. Joe’s standard deduction is $15,750 so Joe will claim the higher standard deduction of $15,750. Assume Joe had a big day on his birthday, and he received a W-2G for $7,000 in winnings from his favorite casino. That entire $7,000 is taxable income. What about the $15,000 Joe lost throughout the year at the casino, lottery machines, and racetrack? Can he deduct any of those losses? Unfortunately, the answer is no.
The most Joe could deduct is up to his winnings ($7,000) but adding that amount to his other itemized deductions would still only bring his total to $15,000, which is less than the standard deduction he is already claiming.
A Warning About Online Gambling
Be careful with online casinos and sports betting. While they may only report net winnings over $600 to the IRS, using multiple platforms can create a tricky situation. For example, if Joe wins $7,000 from one online casino and loses $15,000 at another, Joe will be receiving a $7,000 W-2G from casino #1. Joe would have been better off gambling with just a single platform. If he only used one casino, the net winnings would not have been reportable. This highlights how gambling can be a bad habit in more ways than one, especially when it comes to your tax bill.
⚖️ What Changes in 2026? Let's call it the 90% Rule:
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, alters the balance beginning January 1, 2026 and sticks the daggar in a little deeper.
- Losses are only 90% deductible (still capped at your winnings). In Joe's example, he will only be able to itemize $6,300 (90% X $7,000) in gambling losses.
📊 Why This Matters
- Casual gamblers may be caught off guard by owing taxes even when they didn’t profit.
- Professional gamblers face even greater challenges, since their expenses (travel, meals, entry fees) are also caught in the 90% limit.
- The change is expected to generate billions in tax revenue, but it puts more financial pressure on individuals who gamble regularly.
📝 Record-Keeping Is Non-Negotiable
The IRS expects detailed documentation of gambling activity, including:
- A log of dates, locations, and amounts wagered.
- Receipts, wagering tickets, or casino statements.
- Copies of Form W-2G when issued.
Without solid records, deductions are easily challenged — and now, with the 90% cap, accuracy matters more.
🏛️ The Legislative Outlook
Not everyone agrees with this change and lawmakers from states with large gaming industries (like Nevada and New Jersey) are pushing bills to restore the 100% loss deduction. The FAIR BET Act has been introduced, but repeal efforts have so far stalled.
For now, the 90% rule is set to take effect in 2026 — and taxpayers should plan accordingly.
📌 Planning Ahead: Protect Yourself
Here are proactive steps to stay ahead of the IRS:
- Run simulations: Compare your 2025 and 2026 tax liability under the new rule.
- Plan for phantom income: Even if you expect to break even, budget for potential tax liability.
- Consider withholding or estimated payments: Especially if you gamble heavily, to avoid underpayment penalties.
- Work with a CPA: A professional can help you structure records, prepare deductions properly, and advise if legislative changes occur. At Alto CPA Group, LLC, we help clients navigate new and complex tax rules like this one. Don’t gamble with your financial future — let us guide you to the right strategy.