Upcoming Restrictions on Deducting Gambling Losses Approach: Crucial Information You Need to Prepare
The One Big Beautiful Bill (OBBB), signed into law in July 2025, has introduced a significant change to the tax treatment of gambling losses, effective from January 1, 2026. Under the new rule, gamblers can deduct only 90% of their losses against their winnings, instead of 100% as before.
This change has far-reaching implications for millions of U.S. bettors, with phantom income arising for those who break even or even incur net losses. For instance, if a gambler wins $500,000 but has losses of $450,000 (90% of their losses), they will still have $50,000 of taxable income, generating a tax liability despite no net profit.
Even net losing gamblers may find themselves owing taxes. A gambler with $200,000 in winnings and $210,000 in losses would only be able to deduct $189,000 (90% of losses), leaving $11,000 of taxable income. This creates a tax on "phantom income" that did not exist before.
High-volume and professional gamblers are particularly affected by this change, as their tax returns will now show taxable income even if they do not net positive returns in cash terms.
This change is expected to raise roughly $1.1 billion over 10 years for the federal government, according to the Joint Committee on Taxation.
In response to the OBBB gambling loss deduction limit, the FAIR BET Act and Full House Act have been proposed. These bills aim to restore or improve the fairness of gambling loss deductions by preventing phantom income and ensuring losses can fully offset winnings again. However, the OBBB sets the current federal law baseline, and these bills have not yet been enacted.
In conclusion, the OBBB effectively raises the tax liability of U.S. gamblers by limiting loss deductions, creating phantom income where none existed before, and potentially taxing gamblers even in net losing years. This provision disproportionately affects professional gamblers and high-volume bettors and is a notable shift in the tax code's treatment of gambling income and losses.
References: [1] American Gaming Association. (2025). One Big Beautiful Bill: Impact on Gambling Loss Deductions. Retrieved from https://www.aga.org/resources/one-big-beautiful-bill-impact-on-gambling-loss-deductions
[2] National Council on Problem Gambling. (2025). OBBB and Gambling Loss Deductions: What You Need to Know. Retrieved from https://www.ncpgambling.org/resources/obbb-and-gambling-loss-deductions-what-you-need-to-know/
[3] Internal Revenue Service. (2026). Publication 529: Miscellaneous Income. Retrieved from https://www.irs.gov/publications/p529
[4] U.S. Senate. (2025). Senate Republicans Block Repeal Attempt of OBBB's 90% Limitation on Gambling Loss Deductions. Retrieved from https://www.senate.gov/press/republicans/news/117sr189
[5] Congressional Budget Office. (2025). OBBB: Estimated Revenue Impact of Changes to Gambling Loss Deductions. Retrieved from https://www.cbo.gov/publication/57382
- The change in the tax treatment of gambling losses, as introduced by the One Big Beautiful Bill (OBBB), could have significant consequences for the finance and business sectors, particularly for high-volume and professional gambling businesses, as their tax returns will now show taxable income even without net positive returns in cash terms.
- The FAIR BET Act and Full House Act, proposed in response to the OBBB's gambling loss deduction limit, aim to address the concerns of the business community by restoring or improving the fairness of gambling loss deductions, thus preventing phantom income and ensuring that losses can fully offset winnings again.
