Are Gambling Losses Tax Deductible? The 90% Cap and Limits

Yes, gambling losses are tax deductible on your federal return, but the rules are strict enough that many people who lose money at casinos, sportsbooks, or the lottery end up with no tax benefit at all. You can deduct losses only up to the amount you won in the same year, only if you itemize on Schedule A, and starting with the 2026 tax year, only 90 percent of your losses count toward the deduction.¹

The Two Caps on Your Deduction

Two separate limits apply to gambling losses at the same time, and you get whichever produces the smaller deduction.

The 90 Percent Rule

For 2026 and later, the deduction for wagering losses equals only 90 percent of what you actually lost. This change was enacted as part of the One, Big, Beautiful Bill Act and amends 26 U.S.C. § 165(d).¹ Ten cents on every dollar you lose is permanently nondeductible, even when your losses are smaller than your winnings.

Win $10,000 and lose $10,000 during 2026 and you cannot zero out the tax. The deduction caps at $9,000, and $1,000 in gambling income remains taxable.

The Winnings Cap

The older rule still applies: your deduction cannot exceed your total gambling winnings for the year.¹ Win $5,000 and lose $12,000, and 90 percent of your losses would be $10,800, but the deduction stops at $5,000 because that is all you won. The remaining $7,000 gives you nothing.

Gambling losses can never produce a net loss that offsets wages, business income, or investment returns. Excess losses do not carry forward or backward. Each tax year stands alone.

Running the Numbers

Take 90 percent of your total losses, compare that to your total winnings, and deduct the lower amount.

Win $10,000, lose $8,000: 90 percent of losses is $7,200. That is less than $10,000 in winnings, so you deduct $7,200 and owe tax on $2,800.
Win $5,000, lose $5,000: 90 percent of losses is $4,500. That is less than $5,000 in winnings, so you deduct $4,500 and owe tax on $500.
Win $3,000, lose $9,000: 90 percent of losses is $8,100, but winnings are only $3,000. You deduct $3,000, owe no gambling tax, and absorb $6,000 in nondeductible losses.

You Have to Itemize

Gambling losses are an itemized deduction, claimed on Schedule A of Form 1040 under “Other Itemized Deductions.”² The deduction is worthless unless your total itemized deductions — mortgage interest, state and local taxes, charitable gifts, gambling losses, and the rest — exceed the standard deduction.

For 2026, the standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.³ Casual gamblers who do not own a home, do not carry a large state tax bill, and do not give heavily to charity usually cannot clear those thresholds. In that case, the losses report to no one and reduce nothing.

Winnings, on the other hand, are always taxable. You report them on Schedule 1 (Form 1040), line 8b, whether they come from casino games, sports bets, lottery tickets, horse racing, fantasy sports, or online wagering, and whether or not the payer sent you a tax form.⁴⁵ Noncash prizes count at fair market value.

Why a Break-Even Year Can Still Cost You

Even when your losses fully offset your winnings, the winnings still raise your adjusted gross income. Winnings hit Schedule 1 as income; losses come off further down on Schedule A. The two never net against each other before AGI is calculated, and AGI drives several other numbers on your return and beyond.

Tax Credits Phase Out

Many federal credits shrink as AGI climbs. The child tax credit begins phasing out at $200,000 for single filers and $400,000 for joint filers. Education credits like the lifetime learning credit have their own AGI cutoffs. A large jackpot, even one fully offset by losses, can push you past those thresholds and cost you credits you would otherwise receive.

Medicare Premiums Rise Two Years Later

Medicare Part B and Part D premiums are based on modified adjusted gross income from two years earlier. For 2026, the standard Part B premium is $202.90 per month, and beneficiaries with individual income above $109,000 (or $218,000 filing jointly) pay income-related surcharges that can more than triple the base amount.⁶ Part D surcharges kick in at the same thresholds. One good year at the tables can raise your Medicare bill for the year that follows.

More of Your Social Security Becomes Taxable

Gambling winnings count toward the combined income figure that decides how much of your Social Security is taxed. Above $25,000 (single) or $32,000 (joint), up to 50 percent of benefits become taxable; above $34,000 or $44,000, up to 85 percent. Reporting a large win can push retirees over both cutoffs even when the losses fully offset the winnings.

Records the IRS Will Want to See

The IRS expects an accurate, contemporaneous diary of your gambling activity. At a minimum, log the date and type of each wager, the name and location of the establishment, the names of other people present, and the amounts won or lost.⁷

Back that diary up with supporting documents: Form W-2G statements, wagering tickets, canceled checks, credit card records, bank withdrawal slips, and payout statements from the establishment.⁷ Without contemporaneous records, the IRS can disallow the entire deduction. Keep everything for at least three years from the date you file the return that claims the deduction, which is the standard examination window.⁸

If Gambling Is Your Business

Professional gamblers report on Schedule C rather than Schedule 1 and Schedule A.⁴ The IRS looks at whether you gamble regularly, keep business-like records, and depend on the activity for your livelihood.

Professionals face the same 90 percent limitation on wagering losses that recreational gamblers do.¹ The TCJA restriction on non-wagering business expenses expired at the end of 2025, so professionals can once again deduct travel, lodging, entry fees, and data subscriptions on top of the wagering deduction. Those business expenses are not subject to the 90 percent cap. Professionals still cannot generate a net operating loss from gambling to offset other income.

State Taxes

Federal rules do not settle the state question. Most states with an income tax also tax gambling winnings, but they split on losses. Several tax gross winnings and allow no deduction for losses at all. Others track federal rules and permit a loss deduction up to the amount of winnings. State laws change often, so check your state’s current tax code or ask a local tax professional before assuming you can offset winnings on your state return.

Non-Resident Aliens

If you are not a U.S. citizen or resident alien, gambling winnings from U.S. sources are generally taxed at a flat 30 percent, and you typically cannot deduct gambling losses unless the income is connected with a U.S. trade or business.⁹ Some tax treaties exempt gambling winnings from U.S. tax entirely, so reviewing the applicable treaty is the first thing to do.

1
Office of the Law Revision Counsel. 26 USC 165 – Losses
2
Internal Revenue Service. Topic No. 419, Gambling Income and Losses
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
Internal Revenue Service. Publication 525 (2024), Taxable and Nontaxable Income
5
Internal Revenue Service. Taxable Income
6
CMS. 2026 Medicare Parts A and B Premiums and Deductibles
7
Internal Revenue Service. Diary or Similar Record
8
Internal Revenue Service. How Long Should I Keep Records?
9
Internal Revenue Service. Publication 519 (2025), U.S. Tax Guide for Aliens