Deducting Gambling Losses: The 90% Cap and Itemization Rules

You can deduct gambling losses on your federal return, but two limits apply and a threshold decision comes first. Starting with tax year 2026, deducting gambling losses is capped at 90 percent of what you actually lost, and that deduction still cannot exceed the gambling winnings you report for the same year.¹ On top of that, the deduction only exists for people who itemize on Schedule A. If you take the standard deduction, your losses do nothing for your tax bill.

The 90 Percent Cap and Why It Can Tax Phantom Income

Section 165(d) has always blocked gambling losses from offsetting non-gambling income, so a losing year could never shrink your wages or investment income. For 2026, Congress added a second squeeze: even when your losses are smaller than your winnings, only 90 percent of those losses come off.¹ Your deduction is the lower of two numbers: 90 percent of losses, or total winnings.

Run the math and the sting shows up. Win $10,000, lose $8,000, and your real profit is $2,000. But 90 percent of $8,000 is $7,200, so you pay tax on $2,800. Push the stakes higher and it gets worse. Win $101,000 and lose $100,000 for a real profit of $1,000, and you owe tax on $11,000 because only $90,000 of losses are deductible.

The harshest case hits people who genuinely lost money on the year. Win $100,000 and lose $110,000, and you are down $10,000 in cash. Ninety percent of your losses is $99,000, less than your $100,000 in winnings, so the deduction caps at $99,000. You owe tax on $1,000 of income that does not exist. Excess losses cannot be carried to another year, so anything above the cap disappears for tax purposes.

You Only Get the Deduction if You Itemize

Gambling losses live on Schedule A. If your total itemized deductions do not beat the standard deduction, claiming losses gains you nothing.² 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

Consider a single filer who won $3,000 at a casino and lost $3,000 over the year. On paper the losses could wipe out the income. In practice, unless mortgage interest, state taxes, charitable gifts, and other Schedule A items already add up past $16,100, switching from the standard deduction to itemize costs more than it saves. The winnings still go on the return as income, and the losses provide no offset.

Where the Numbers Go on Your Return

All gambling winnings belong on Schedule 1 (Form 1040) as other income. That includes W-2G amounts, winnings that fell below any reporting threshold, online sportsbook profits, and non-cash prizes at fair market value. The total flows into your adjusted gross income on Form 1040.²

Losses go separately on Schedule A under “Other Itemized Deductions.” The amount cannot exceed 90 percent of actual losses and cannot exceed the winnings you reported.¹ Win $5,000, lose $5,000, and you report $5,000 on Schedule 1 and claim $4,500 on Schedule A, leaving $500 of taxable gambling income despite breaking even.

Do not report losses without reporting the corresponding winnings. The IRS matches W-2G forms to returns automatically, and a return with deductions but no gross winnings will draw a notice. Report the full winnings first, then take the capped deduction.

How Big Winnings Inflate AGI and Trigger Other Costs

Gambling winnings hit adjusted gross income before any Schedule A deduction is applied. Losses reduce taxable income, but they never reduce AGI itself.² That distinction matters because many tax benefits and program thresholds are keyed to AGI.

A retiree who hits a $30,000 jackpot can find that the higher AGI pushes Social Security benefits into a taxable bracket. Medicare beneficiaries face a concrete penalty: income-related monthly adjustment amounts add surcharges to Part B and Part D premiums once modified AGI passes $109,000 for an individual or $218,000 for joint filers, with the first tier adding $81.20 per month to Part B alone.⁴ Because IRMAA uses a two-year lookback, one big gambling year can raise premiums for two. The Earned Income Tax Credit and the Child Tax Credit phase out with AGI as well. Non-cash prizes make it worse: winning a car or vacation counts as income at fair market value, so AGI climbs even though no cash arrived to pay the bill.²

Records the IRS Expects You to Keep

The IRS wants a diary or log covering every gambling session throughout the year. Each entry should capture the date, the type of game, the name and location of the establishment, anyone with you, and the amounts won or lost. Recording the same day protects the log’s credibility, because reconstructing entries from memory rarely survives an audit.²

Back the diary with paper. Canceled checks, bank withdrawal records, and credit card statements showing transfers to gambling accounts all help. For casino visits, keep losing tickets, player’s club statements, and any year-end win/loss summary the casino issues. Race track bettors should keep losing ticket stubs.

Online and App-Based Play

Sportsbook and casino apps generate transaction histories that qualify as substantiation; the IRS accepts “receipts, tickets, statements, or other records” without distinguishing paper from digital.² Download the account history and annual statement from every platform you used. These usually show each wager, each payout, and every deposit and withdrawal. Export and save them before the end of January; platforms do not keep records forever.

Slot Play and the Session Safe Harbor

Tracking every spin at a slot machine is not realistic, and the IRS knows it. A safe harbor lets you net wins and losses across a single “session of play” and report only the net for that session. A session begins with your first wager on a particular type of game and ends when you stop playing that game type before midnight the same calendar day.⁵

Feed $500 into slots over an evening and cash out with $350, and that is a $150 loss for the session. The method requires electronically tracked play through a player’s card or similar casino system. Two casinos in the same day means two sessions. Sessions cannot be netted against each other: a winning Tuesday and a losing Wednesday are reported separately, with the gain added to income and the loss taken on Schedule A. If you use the session method at a casino for any day in the year, you must use it for all electronically tracked slot play at that casino for the entire year.⁵

Professional Gamblers

If you gamble full-time with continuity and regularity and your primary purpose is earning a living, the IRS may treat gambling as your trade or business under the standard the Supreme Court set in Commissioner v. Groetzinger.⁶ Professionals report on Schedule C.

The 2026 rules dulled the advantage. The statute treats business expenses connected to gambling, such as travel, tournament entry fees, data subscriptions, and lodging, as “losses from wagering transactions,” which subjects them to the same 90 percent cap and gains limitation as the wagers themselves.¹ A poker professional who wins $200,000 with $180,000 in losses and $25,000 in travel and entry fees can only deduct 90 percent of the combined $205,000, or $184,500. The $15,500 that gets lopped off is taxed as phantom income.

State Taxes Are a Separate Question

Most states with an income tax also tax gambling winnings, and the treatment of losses varies. Some states mirror the federal approach and allow itemized loss deductions. Others disallow the deduction entirely, so you pay state tax on gross winnings no matter how much you lost. A few states have no income tax at all. Check your state’s rules before assuming a federal deduction carries over.

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
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
5
Internal Revenue Service. Notice 2015-21 – Safe Harbor Method for Determining Wagering Gain or Loss From Slot Machine Play
6
Legal Information Institute. Commissioner of Internal Revenue v. Robert P. Groetzinger