Imagine you bet $500,000 over the course of a year at your local casino or through a legal online sportsbook. You won $500,000 back. Not a dollar more. By any normal definition of income, you made nothing — you broke even. Starting with the 2026 tax year, the IRS can still tax you on $50,000 of income you never had.
That's not a hypothetical edge case. It's the mechanical result of a single sentence buried in the One Big Beautiful Bill Act (OBBBA), the sweeping tax law signed on July 4, 2025. Beginning in tax year 2026, gambling losses are deductible only up to 90% of your winnings, down from the 100% offset that's applied since gambling losses became deductible at all. The other 10% simply disappears — not as a loss you absorb, but as phantom taxable income the IRS treats as if you earned it. If you run a business anywhere near legal gambling — a poker room, a bar with video lottery terminals, a fantasy-sports platform, a card room, or you're a professional or serious recreational gambler who itemizes — this is a rule you need to understand well before you file your first 2026 return.
What Actually Changed
Before OBBBA, the rule under Internal Revenue Code Section 165(d) was simple: you could deduct gambling losses up to the amount of your gambling winnings, as an itemized deduction on Schedule A. Win $80,000, lose $80,000, and your gambling activity was a wash on your tax return — zero net taxable gambling income, exactly matching the zero net cash you actually ended up with.
OBBBA changed the ceiling. For tax years beginning after December 31, 2025, you can deduct the lesser of (a) 90% of your gambling winnings, or (b) your actual, substantiated gambling losses and related expenses. The rule that losses still can't exceed winnings didn't go anywhere — you were never able to use gambling losses to shelter your salary or business income, and that hasn't changed. What changed is that even a dollar-for-dollar breakeven year now generates taxable income out of thin air, because 10% of your losses are permanently disallowed no matter how well documented they are.
This applies to casual gamblers who itemize deductions and to professional gamblers who report their activity on Schedule C. It applies whether you're playing slots in Las Vegas, betting legally through a licensed online sportsbook in one of the states that allows it, or grinding out a living at the poker table.
The Math That Makes This a Real Problem
The clean way to see the impact is to run a few net-neutral or modestly profitable scenarios through both the old and new rules.
Scenario 1: Dead-even year. You wagered a total of $200,000 across the year and had $200,000 in reportable winnings, with $200,000 in losses. Under the old rule, $200,000 in losses fully offsets $200,000 in winnings — zero net gambling income. Under the OBBBA rule, only 90% of your losses ($180,000) is deductible against your $200,000 in winnings, leaving $20,000 of taxable income you never actually kept. At a 24% marginal rate, that's roughly $4,800 in tax owed on money that isn't in your bank account.
Scenario 2: Modest profit that turns into a loss after tax. This is the scenario tax analysts have flagged as the most damaging. If your winnings and losses are close enough together, the 10% haircut on the loss side can push your effective tax rate on gambling activity above 100% — meaning the tax bill exceeds the actual profit you walked away with. A player who wagered heavily and finished only marginally ahead for the year can, in the worst cases, owe more in tax than they actually kept.
Scenario 3: A professional's real numbers. Analysis built around a top poker player's 2025 World Series of Poker results — roughly $1.48 million in tournament cashes against about $1.3 million in buy-ins, for a real net profit of about $181,000 — showed the tax bill on that same activity rising from roughly $67,000 under the old rule to around $115,000 under the OBBBA cap, cutting take-home profit nearly in half even though the underlying result didn't change at all.
None of these examples require anything unusual — no fraud, no missing receipts, no aggressive tax position. They're just what happens mechanically when a fixed percentage of legitimate, fully documented losses stops counting.
Who This Actually Hits
Casual gamblers who itemize. If you take the standard deduction, none of this changes anything for you directly — you were never deducting gambling losses in the first place, since itemizing has always been required to claim them. But if you're one of the itemizers (often higher earners, homeowners with mortgage interest, or people with large state and local tax and charitable deductions), and you gamble with any regularity, the 90% cap now applies to you on every return going forward.
Professional gamblers. Poker players, sports bettors, and daily fantasy players who gamble as a trade or business report on Schedule C, deducting both wagering losses and ordinary business expenses (travel, tournament entry fees, coaching, software). The 90% cap on losses applies here too, which means professionals now face a tax bill that doesn't move in lockstep with their actual results — a genuinely new kind of business risk layered on top of the variance that's already inherent to gambling for a living.
Gaming-adjacent small businesses. Card rooms, bars and taverns that host video lottery terminals or charitable gaming nights, daily fantasy sports operators, and affiliate or marketing businesses tied to legal sportsbooks all have customers and, in some cases, owner-operators whose personal tax exposure just went up. A card room owner who also plays in the games they host, or a bar owner who occasionally plays the machines in their own establishment, needs to think about this as clearly as any customer does.
States with legal gambling. Seven states currently run legal online gambling markets, and gaming tax revenue nationally topped roughly $3 billion in 2024. Several of those states tie their own income tax treatment to federal itemized deduction rules, meaning the phantom-income effect can compound at the state level too, depending on where you live.
The Push to Repeal It — and Why You Shouldn't Bank on That
This provision wasn't a deliberate policy choice about how gambling should be taxed — it was a byproduct of Senate reconciliation rules. Legislation passed under budget reconciliation has to meet the "Byrd Rule," which requires each provision to have a real, scoreable budgetary effect. Capping the gambling loss deduction was projected to raise roughly $1.1 billion in federal revenue over eight years, which helped the bill's overall numbers work — even though almost nobody involved in drafting it has publicly defended the 90% cap as good tax policy on its own merits.
That's produced an unusual bipartisan scramble to undo it before it ever takes effect. Three separate bills have been introduced: the FAIR BET Act in the House (Rep. Dina Titus), the WAGER Act in the House (Rep. Andy Barr), and the FULL HOUSE Act in the Senate, co-sponsored across party lines including Sens. Cortez-Masto, Cruz, and Rosen. Each would restore the full 100% offset in some form.
Any of these could pass before the provision's first real filing season arrives in early 2027 for tax year 2026 returns. But none had passed as of this writing, and betting your tax planning on a repeal that hasn't happened yet is exactly the kind of mistake this article is trying to help you avoid. Plan for the 90% cap as current law. If it gets repealed, adjusting is easy. If you assume repeal and it doesn't happen, you'll be scrambling in April.
What to Do About It Now
Keep airtight, session-by-session records — this matters more now, not less. Under the old 100%-offset rule, a taxpayer with slightly incomplete records could often still come out roughly whole, because the IRS and courts have historically been willing to accept reasonable session-based logs (date, location, game, amounts wagered and won or lost) even without a receipt for every single wager. Under the 90% cap, every dollar of unsubstantiated loss is now doubly expensive: it was never deductible to begin with, and even the losses you can prove only offset 90 cents of tax liability per dollar. Sloppy records used to cost you the deduction; now they cost you more, on a base that's already shrinking.
Separate gambling activity from other income and expenses in your books. If you're a professional gambler or you run a business where gambling activity touches your personal or business finances, don't let winnings, losses, buy-ins, and related expenses get blended into general "income" or "miscellaneous" categories. You want a ledger structure that can produce, on demand, total winnings, total losses, and the resulting 90% cap calculation — not a reconstruction project done from memory at tax time.
Talk to a tax professional about entity and timing decisions before year-end, not after. Professional gamblers in particular should revisit how they're tracking Schedule C income and expenses given the new cap, and anyone close to the itemize-versus-standard-deduction line should model out whether 2026's higher standard deduction changes whether claiming gambling losses is even worth doing on paper.
Watch the legislative situation, but don't plan around it. If one of the repeal bills advances, the effective date and any transition rules will matter for how you file. Until then, treat the 90% cap as the rule that applies to your 2026 activity.
Keep Your Records Clean, Whatever the Law Does Next
Rules like this one are a reminder that tax law can turn a "did I make money or not" question into something a lot more mechanical and unforgiving — and the businesses and individuals who come out ahead are usually the ones whose records were already clean before the rule changed. Beancount.io gives you plain-text, version-controlled accounting where every wager, buy-in, and payout can live in its own clearly defined account from day one, so pulling the exact numbers a tax preparer needs is a query, not a reconstruction. Get started for free and see why developers, professionals, and small business owners are moving to plain-text accounting they can actually audit. Learn more in the documentation, or explore Fava for a visual dashboard on top of your ledger.