Beginning in January, 2026, the IRS will implement a major change to how recreational gambling is taxed.
Under this new policy, taxpayers will only be allowed to deduct up to 90 percent of their gambling losses, even if their total losses equal or exceed their winnings.
This creates a new and unexpected problem for many players.
If you win $10,000 and lose $10,000, the IRS will still treat $1,000 as taxable income.
That means gamblers may owe taxes even in a year when they finished without profit.
What Exactly Is Changing?
Under current law, recreational gamblers can deduct gambling losses up to the full amount of their winnings.
This allows taxpayers who break even to avoid gambling-related income tax.
The new rule changes the deduction calculation.
This partial deduction means you can no longer fully offset your winnings with equal losses.
Example: Break-Even Gambler
Winnings: $10,000
Losses: $10,000
Allowed deduction: $9,000 (90 percent)
Taxable income: $1,000
This result is unavoidable, even if your actual net profit is zero.
Why the Change Matters
The shift is not a minor rule adjustment.
It changes how the tax code treats gambling activity, and it will affect:
- Casino players with regular wins and losses
- Online sports bettors using DraftKings, FanDuel, BetMGM and others
- Racetrack bettors and DFS participants
- Casual gamblers who do not track activity closely
This rule creates several new challenges:
- Unexpected tax bills for break-even or losing gamblers
- More complex recordkeeping to validate loss deductions
- Greater risk of mismatches between W-2G income and reported losses
- Higher audit exposure for individuals with large gambling activity
Even gambling losses that exceed winnings will benefit taxpayers less than before.
How the 90 Percent Rule Works
Below are common scenarios to show how the rule affects different types of gamblers:
Scenario 1: Break-Even Player
Winnings: $10,000 Losses: $10,000 Allowed loss deduction: $9,000 – Taxable income: $1,000
Scenario 2: Small Net Loss
Winnings: $5,000 Losses: $6,000 Allowed loss deduction: $5,400 – Taxable income: -$400 (no tax, but deduction reduced)
Scenario 3: High-Volume Gambler
Winnings: $50,000 Losses: $60,000 Allowed loss deduction: $54,000 – Taxable income: -$4,000
Even large losses cannot fully offset winnings under the new system.
Who Will Be Most Affected?
The taxpayers most impacted include:
- Recreational gamblers who rely on losses to reduce taxable income
- Sports bettors with high transaction volume
- Casino players who frequently withdraw winnings during the year
- Online platform users whose accounts track every win and loss
Professional gamblers may be subject to different treatment depending on their filing status and activity level.
What Gamblers Should Do Now
To prepare for the upcoming change, gamblers should:
- Keep detailed records of every session or wager
- Download casino win-loss statements at the end of each year
- Track balances on all sportsbook and casino apps
- Set aside part of winnings for potential tax liability
- Consult a tax professional if reporting multiple sources of gambling income
The accuracy of your records will directly affect the deduction you are allowed to claim.
Frequently Asked Questions (FAQ)
Will I owe tax even if I end the year with no gambling profit?
Yes. The 90 percent rule means break-even gamblers may still have taxable income because losses can no longer fully offset winnings.
Do casinos still report winnings to the IRS?
Yes. W-2G reporting rules have not changed. Casinos and sportsbooks must report certain winnings, and those amounts must be included on your tax return.
Do I need to itemize to deduct losses?
Yes. Gambling losses remain an itemized deduction. If you take the standard deduction, you cannot claim gambling loss deductions.
Does the 90 percent rule apply to sports betting and online gambling?
Yes. The rule applies to all forms of gambling: casinos, sportsbooks, DFS, racetracks, lotteries and online gaming platforms.
If I lose more than I win, will I owe tax?
Not usually. But your total deductible losses will be reduced. This means the tax benefit of heavy losses is smaller than before.
How do I track my losses correctly?
Keep receipts, betting histories, win-loss statements, sportsbook transaction reports and logs of every gambling session. Poor recordkeeping may reduce your deduction further.
Does this change apply to professional gamblers?
Professional gamblers may calculate losses differently depending on how they report business activity. In most cases, the rule primarily affects recreational gamblers.
Will this increase IRS audits?
Possibly. Large discrepancies between W-2G winnings and claimed losses often trigger IRS review, and partial loss deductions may create more mismatches.
When does this new rule take effect?
It is expected to apply to the 2025 tax year, meaning taxpayers will feel the impact when filing returns in early 2026.
Bottom Line
The IRS’s new gambling tax rule means you may owe tax even when your gambling activity produced no real profit.
By limiting loss deductions to 90 percent, the IRS is increasing taxable income for millions of recreational gamblers.
If you wager at casinos or online platforms, now is the time to prepare, document your activity and understand how these rules affect your year-end tax bill.
Amro Badran, EA, is the Managing Partner of Badran Tax,
With over 40 years of experience and accreditation as a Federal Enrolled Agent,
Amro Badran and his team of tax professionals specialize in helping individuals and businesses resolve complex IRS & state tax issues and controversies.
Experienced and Trusted Tax Resolution Firm based in New Brunswick, NJ.
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