How to Offset Gambling Winnings Under the New 90% Cap

To offset gambling winnings on your federal return, you report the full amount you won as income and then deduct your losses as an itemized deduction on Schedule A. Starting with the 2026 tax year, that deduction is capped at 90% of your losses, and it still cannot exceed your winnings for the year. The mechanics are simple; the traps are in the itemization math, the recordkeeping, and how your state treats the same numbers.

The 90% Cap and the Winnings Ceiling

Two limits control how much of your losses you can actually use. Under the amended 26 U.S.C. § 165(d), your deduction is limited to 90% of your gambling losses for the year, and it still cannot exceed your gambling gains. The change was enacted by Section 70114 of the One, Big, Beautiful Bill Act and applies to taxable years beginning in 2026 and beyond.¹

Two examples show how the caps interact. If you won $10,000 and lost $10,000, 90% of your losses is $9,000, which is below your $10,000 in winnings, so you deduct $9,000 and pay tax on the remaining $1,000. If you won $5,000 and lost $8,000, 90% of your losses is $7,200, but your deduction is capped at $5,000 because losses cannot exceed gains. Either way, breaking even at the tables no longer means breaking even on your taxes.

The 10% of losses you cannot deduct simply disappears. It does not carry to next year, and it does not offset any other kind of income.

Where the Numbers Go on Your Return

All gambling winnings are taxable, whether or not a casino or sportsbook reports them. Cash payouts, lottery prizes, and the fair market value of non-cash prizes like cars or trips all count.² Report total winnings on Schedule 1 (Form 1040), Line 8b. That amount flows into your adjusted gross income.

Losses go on Schedule A under “Other Itemized Deductions.”² You cannot net winnings and losses and report only the profit. The gross winnings figure inflates your AGI, which can trigger phase-outs on other credits and deductions even in a year when you finished behind at the tables.

Whether Itemizing Is Worth It

Claiming gambling losses means giving up the standard deduction. For 2026, that is $16,100 for single filers, $24,150 for head of household, and $32,200 for married couples filing jointly.³ If your gambling losses plus mortgage interest, state and local taxes, and charitable contributions do not clear that number, itemizing costs you money.

Run both versions of the return before you decide. A single filer with $8,000 in gambling losses and $6,000 in other itemized deductions totals $14,000, which is short of the $16,100 standard deduction. Itemizing here would raise the tax bill. Anyone whose only reason to itemize is gambling losses needs those losses to be sizable before it pencils out.

Records That Make the Deduction Stick

The IRS requires you to keep records of both winnings and losses to claim the deduction.² Under IRS Revenue Procedure 77-29, the recommended approach is a contemporaneous diary that logs the date and type of each wager, the name and address of the establishment, who was with you, and the amounts won and lost. Contemporaneous is the operative word. A spreadsheet rebuilt from memory at tax time carries far less weight under audit than entries made the same day.

Supporting documents back up the diary:

Form W-2G, issued by casinos and sportsbooks when winnings cross reporting thresholds.
Annual win/loss statements from casino loyalty programs, useful as corroboration but limited because they only capture play tracked by your card.
Wagering tickets, receipts, and unredeemed tickets.
Bank and credit card statements showing withdrawals at gambling establishments and deposits of winnings.

If the IRS disallows your deduction for lack of documentation, you owe tax on the full amount of your winnings plus a potential accuracy-related penalty of 20% of the underpayment.⁴

The Session Method for Slot Play

For electronically tracked slot machine play, the IRS offers a safe harbor. Under IRS Notice 2015-21, a session starts with your first wager on a particular game type and ends with your last wager on the same game type before midnight at the same establishment.⁵ You report the net gain or loss from each session rather than tracking every spin. Moving to a different casino starts a new session, even on the same day.

When a W-2G Arrives

Starting in 2026, the slot machine reporting threshold rose from $1,200 to $2,000, and it will now adjust annually for inflation.⁶ Not receiving a W-2G does not mean the winnings are tax-free. You owe tax on all gambling income regardless of whether the payer reports it, so keep your own records even on wins below the threshold.

State Rules Often Do Not Match

State income tax treatment frequently diverges from federal. Many states do not allow any deduction for gambling losses, even when you itemize federally. In those states, you pay state tax on the full amount of your winnings regardless of how much you lost, and someone who broke even for the year can still owe thousands. Other states permit partial deductions or apply their own caps. Check your state’s instructions before assuming the federal treatment carries over; a mismatch between what you report federally and what your state expects is a common audit trigger.

If You Gamble for a Living

Someone who gambles full-time, in good faith, and with regularity as a livelihood may be classified as a professional gambler engaged in a trade or business. The Supreme Court set that standard in Commissioner v. Groetzinger (1987). Professionals report gambling income and expenses on Schedule C, so they do not need to itemize to claim losses.

The 90% loss limitation in § 165(d) still applies.¹ One piece of good news in the 2026 law: the expanded definition of “losses from wagering transactions,” which includes ordinary business expenses like travel, lodging, and tournament entry fees tied to the gambling activity, is now permanent. Under the Tax Cuts and Jobs Act, that expanded definition was scheduled to expire after 2025. Net profit on Schedule C is subject to self-employment tax, and professional gamblers cannot generate a net operating loss from gambling activity the way most other businesses can.

Estimated Tax After a Large Win

A big win mid-year can create an underpayment problem. If your wage withholding and any gambling withholding do not cover your total tax liability, you may owe a penalty. The IRS generally waives it if you owe less than $1,000 at filing, or if you paid at least 90% of the current year’s tax or 100% of last year’s tax through withholding and estimated payments (110% if your prior-year AGI exceeded $150,000).⁷

Estimated taxes are due April 15, June 15, September 15, and January 15 of the following year.⁸ If the win hit in a single quarter, the annualized income installment method on Form 2210, Schedule AI, recalculates each quarter’s required payment based on income actually earned in that period. It can significantly reduce or eliminate penalties for a windfall late in the year.

Nonresidents and Filing Status

If you are not a U.S. citizen or resident, gambling winnings from U.S. sources are generally subject to a flat 30% federal withholding tax.⁹ Nonresident aliens other than residents of Canada generally cannot deduct gambling losses against those winnings.² You file Form 1040-NR with Schedule NEC. Some tax treaties reduce or eliminate the 30% rate, but the payer needs proper documentation before applying the reduced withholding.

For married couples, filing jointly puts both spouses’ winnings and losses on the same return, and each spouse’s losses can offset the combined gambling income subject to the usual limits. Filing separately restricts each spouse to their own documented losses against their own reported winnings, and if one spouse itemizes, the other must itemize as well, even when the standard deduction would have been better.

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, Including Amendments From the One, Big, Beautiful Bill
4
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
5
Internal Revenue Service. Safe Harbor Method for Determining a Wagering Gain or Loss From Slot Machine Play
6
Internal Revenue Service. Instructions for Forms W-2G and 5754
7
Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
8
Internal Revenue Service. Quarterly Estimated Tax Deadlines for Individuals
9
Internal Revenue Service. Publication 515 (2026), Withholding of Tax on Nonresident Aliens and Foreign Entities