Gambling Loss Deduction Cap Hits US Bettors in 2026

⏱ 3 min read

A single paragraph buried deep in President Trump's One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, is reshaping the economics of legal gambling in the United States. Effective January 1, 2026, American gamblers can now deduct only 90% of their wagering losses against winnings — down from 100% under rules that had stood for nearly 70 years. The result: a bettor who wins $100,000 and loses $100,000 still owes federal tax on $10,000 of income that does not exist.

The provision was inserted late in the Senate's reconciliation process to satisfy procedural budget rules, never received a standalone vote, and has since sparked the most unified industry backlash since the Supreme Court's 2018 PASPA ruling. Multiple repeal bills have been introduced in both chambers, the American Gaming Association (AGA) has made reversal its top legislative priority, and in May 2026 UFC CEO Dana White sent a formal letter directly to President Trump urging him to fix what he called an "irrational" law — briefly pushing prediction-market odds of repeal from 20% to over 37%.

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What the OBBBA Actually Changed

Before 2026, Section 165(d) of the Internal Revenue Code allowed gamblers to deduct losses in full, up to the amount of their winnings — meaning only net gains were taxable. The OBBBA's Section 70114 amended that rule so only 90% of losses are deductible, still capped at winnings. The disallowed 10% cannot be carried forward; it disappears permanently each tax year.

Two related changes hit the same January 1, 2026 effective date. The W-2G reporting threshold for slots, bingo, and keno rose from $1,200 to $2,000 (indexed for inflation going forward), giving operators modest administrative relief. The TCJA rule that folds professional gamblers' ordinary business expenses — travel, entry fees, data subscriptions — into the 165(d) wagering-loss limit was made permanent, meaning the 90% cap applies to those costs too.

The Joint Committee on Taxation estimated the deduction cut would generate roughly $1.1 billion in federal revenue over eight years, or about $137.5 million annually. Critics argue this projection ignores behavioral responses.

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The Phantom Income Problem

The practical effect is clearest at the extremes. A recreational player who wins $18,000 and loses $18,000 across a year nets zero — but under the new rules can deduct only $16,200, leaving $1,800 of taxable "phantom income." A professional poker player who cashes $700,000 and loses $560,000 while spending $70,000 on travel and tournament fees once reported zero net income; now, after the 90% cap is applied to the combined $630,000 in losses and expenses, they face roughly $133,000 in taxable income despite no real profit.

For the highest-volume bettors the math turns catastrophic. The Tax Foundation modeled a scenario where a player profitable by $50,000 on the year ends up owing more in federal tax than their actual winnings — an effective tax rate exceeding 100%. American Bettor's Voice projects the provision could drive $18 billion in annual sportsbook handle offshore, with $1.5 billion in gross gaming revenue lost across the industry.

Only taxpayers who itemize deductions can claim gambling losses on Schedule A at all, and with just ~14% of Americans expected to itemize in 2026, casual gamblers who take the standard deduction face an even starker reality: all winnings remain taxable but losses provide zero offset.

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Repeal Bills and Congressional Gridlock

Three bipartisan bills are currently stalled before the House Ways and Means Committee:

• FAIR BET Act (H.R. 4304) — Introduced July 7, 2025 by Rep. Dina Titus (D-NV). Would restore the full 100% deduction. Backed by DraftKings, FanDuel, the AGA, and bipartisan co-sponsors including Rep. Tom Cole (R-OK), chair of the House Appropriations Committee. Blocked as a NDAA amendment in December 2025 and as a Consolidated Appropriations Act rider in January 2026.
• WAGER Act (H.R. 4630) — Introduced July 23, 2025 by Rep. Andy Barr (R-KY). Identical policy goal via a separate bill; referred to Ways and Means.
• FULL HOUSE Act — Senate companion introduced by Sen. Catherine Cortez Masto (D-NV) and co-sponsored by Sen. Ted Cruz (R-TX). Stalled in the Senate Finance Committee after an initial unanimous-consent attempt failed in July 2025.

The House Ways and Means Committee is reportedly planning a formal hearing on sports-related tax issues in late spring or early summer 2026 per Punchbowl News, which would be the first procedural step toward advancing any of the three bills. Committee chair Rep. Jason Smith (R-MO) called the deduction change a "bad decision" at a July 2025 Las Vegas field hearing, though he has not yet scheduled a markup.

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Industry Fallout and Offshore Risk

On May 11, 2026, Dana White sent a letter on official UFC letterhead to President Trump — first reported by analyst Dustin Gouker — warning that the law makes it "irrational to bet in the United States" and risks pushing gamblers toward unregulated offshore platforms. The letter moved Kalshi's prediction market for repeal before 2027 from 20% to briefly over 37% before settling around 29–30%.

Operators and regulators share the offshore concern. Rep. Titus warned the House Ways and Means Committee that bettors driven offshore lose all consumer protections — self-exclusion tools, dispute resolution, responsible gambling checks — that the post-PASPA regulatory build-up spent years establishing. State governments face their own exposure: if the Tax Foundation's revenue-loss projections are correct, the top ten gambling states could see between $267 million and $716 million in annual tax revenue disappear.

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What Bettors Should Do Now

Until Congress acts, the 90% cap is law for the full 2026 tax year. Practical steps for US-based players:

• Log every session — The IRS measures wins and losses by gambling session, not individual bet. A contemporaneous diary with dates, venues, and amounts is the minimum standard for supporting any deduction claim.
• Enrol in casino loyalty programmes — Operator tracking systems automatically record session-level win/loss data that can supplement personal records and withstand IRS scrutiny.
• Confirm whether itemizing makes sense — Only itemizers can claim the 165(d) deduction at all. Gamblers whose total itemized deductions (mortgage interest, state taxes, charitable giving, gambling losses) don't exceed the standard deduction receive zero offset for losses.
• Consult a tax professional on professional status — Scheduling C treatment for high-volume bettors allows expenses to reduce gambling income, though the 90% cap still applies to the combined loss figure.
• Monitor legislative developments — The Ways and Means hearing expected in mid-2026, along with any future must-pass spending bills, remain the most likely vehicles for repeal before year-end.

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Old vs New: Gambling Loss Deduction at a Glance

Scenario	Winnings	Losses	Taxable Income (Pre-2026)	Taxable Income (2026+)
Break-even bettor	$100,000	$100,000	$0	$10,000 (phantom)
Slight winner	$110,000	$100,000	$10,000	$20,000
Net loser	$80,000	$100,000	$0	$8,000 (phantom)
Professional (high volume)	$700,000	$700,000 (incl. expenses)	$0	$70,000 (phantom)
Big winner	$250,000	$250,000	$0	$25,000 (phantom)

Source: Author calculations based on OBBBA Section 70114 and Tax Foundation modelling. Assumes itemizer status; actual liability depends on tax bracket.

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Sources

Research for this article draws on primary legislative text, IRS guidance, congressional statements, and specialist industry reporting verified across multiple outlets.

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The current law makes it irrational to bet in the United States because you could end up owing taxes even when you lose or having a tax bill that exceeds your winnings for the year.

— Dana White, CEO, UFC · Letter to President Donald Trump, May 11, 2026