The new tax law on gambling losses caps your deduction at 90 percent of what you lost, starting with the 2026 tax year. The change came through the One Big Beautiful Bill Act signed in July 2025, which amended 26 U.S.C. ยง 165(d).1Office of the Law Revision Counsel. 26 USC 165 Losses The practical result: a gambler who wins and loses the same amount in a year no longer breaks even for tax purposes. You will owe tax on 10 percent of your winnings.
What Changed and How the Math Works
Under the prior rule, gambling losses offset winnings dollar-for-dollar, up to the amount you won. Win $20,000, lose $20,000, owe nothing on that activity. The 2026 rule keeps the ceiling at your total winnings but shrinks the deduction to 90 percent of your losses.1Office of the Law Revision Counsel. 26 USC 165 Losses
Same $20,000 win and $20,000 loss. Ninety percent of $20,000 is $18,000. You now report $2,000 of taxable gambling income despite ending the year exactly where you started.
The cap only pinches when losses come close to winnings. If you win $5,000 and lose $12,000, 90 percent of your losses is $10,800, but the deduction is still capped at your $5,000 in winnings. Taxable gambling income is zero, just as it would have been before. Big-loss years absorb the 90 percent haircut without a change in outcome; break-even and small-net-loss years are where the new math hurts.
Expenses Now Count Against the Cap
The amended statute permanently folds gambling-related expenses into the definition of “losses from wagering transactions.”1Office of the Law Revision Counsel. 26 USC 165 Losses Travel, hotels, entry fees, and meals connected to your gambling are all thrown into the same bucket as the wagers themselves and subjected to the same 90 percent limit. There is no separate line to claim those costs.
Whether You Can Actually Take the Deduction
The 90 percent cap only matters if you itemize. Gambling losses go on Schedule A, so if you take the standard deduction, you cannot deduct any losses at all.2Internal Revenue Service. Topic No. 419, Gambling Income and Losses The 2026 standard deduction amounts are:3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- Single or married filing separately: $16,100
- Married filing jointly: $32,200
- Head of household: $24,150
Itemizing pays off only when your mortgage interest, state and local taxes, charitable gifts, and gambling losses combined clear the threshold for your filing status. Most recreational gamblers do not get there, which means they deduct nothing.
Either way, your winnings are still taxable. Report every dollar of gambling income on Schedule 1 of Form 1040, whether or not a casino sent you a W-2G.2Internal Revenue Service. Topic No. 419, Gambling Income and Losses Netting your wins against your losses on that line is not allowed. Winnings and losses live on separate schedules, and if you take the standard deduction, the losses side stays empty.
The Hit on Professional Gamblers
The 90 percent cap applies to professionals as well as recreational bettors.1Office of the Law Revision Counsel. 26 USC 165 Losses Professionals report income and expenses on Schedule C, and their net earnings are also subject to self-employment tax.2Internal Revenue Service. Topic No. 419, Gambling Income and Losses
Because the statute now sweeps business expenses like coaching, data subscriptions, and travel into “losses from wagering transactions,” those costs share the 90 percent limit with the wagers themselves. A pro who wins $200,000 and has $200,000 in combined wager losses and business expenses can deduct only $180,000. That leaves $20,000 exposed to both income tax and self-employment tax.
Reporting Winnings and Losses Correctly
Reporting splits across two parts of your return. Gross winnings go on Schedule 1 and flow to Form 1040. Deductible losses, calculated at 90 percent and capped at winnings, go on Schedule A under “Other Itemized Deductions.”2Internal Revenue Service. Topic No. 419, Gambling Income and Losses1Office of the Law Revision Counsel. 26 USC 165 Losses
Do not report a net figure. The IRS wants the full winnings amount as income and losses claimed separately.4Internal Revenue Service. Know the Five Important Tips on Gambling Income and Losses Every W-2G a casino or sportsbook issues is also sent to the IRS, so unreported winnings usually surface.
Records You Need to Support the Deduction
The IRS expects a contemporaneous gambling diary maintained through the year, not a spreadsheet built from memory in April. Each entry should include the date, the type of wager, the establishment’s name and location, who was with you, and the amounts won and lost. Keep supporting documents alongside it: losing tickets, canceled checks, credit card statements, and casino receipts.5Internal Revenue Service. Five Important Tips on Gambling Income and Losses
Casino win/loss statements from a rewards program are useful backup, but the IRS treats them as secondary to your own records. If the casino says you lost $8,000 and your diary says $6,500, be ready to explain the gap.
The Session Method
Tracking every spin or hand is not realistic, and the IRS knows it. A Chief Counsel memorandum lets casual gamblers record the net result of each continuous session rather than each individual bet.6Internal Revenue Service. Reporting of Wagering Gains and Losses Sit down at a slot machine with $100 and cash out with $300, and your session gain is $200. Cash out with $20, and your session loss is $80.
What counts as a session depends on the game. Slot play is generally a continuous period at one casino. A poker tournament is one session. Each sports bet stands on its own. Record buy-ins and cash-outs as they happen.
How Long to Keep the Records
Hold gambling documentation for at least three years after filing the return that claims the deduction, matching the IRS’s standard assessment window.7Internal Revenue Service. How Long Should I Keep Records Underreport income by more than 25 percent and the window opens to six years. Fraud has no time limit.
Withholding Gaps and Estimated Tax
Getting a W-2G does not mean tax was withheld. Federal withholding is a flat 24 percent, but generally only applies to winnings above $5,000 from sweepstakes, lotteries, wagering pools, and certain other wagers where the payout is at least 300 times the bet.8Office of the Law Revision Counsel. 26 USC 3402 Income Tax Collected at Source A $3,000 slot jackpot gets a W-2G but usually no withholding. A $10,000 lottery prize gets both.
Winnings without withholding can push you into an underpayment penalty at filing. Quarterly estimated tax payments cover the gap.2Internal Revenue Service. Topic No. 419, Gambling Income and Losses Sports bettors and online gamblers get caught by this most often, because a run of winning app bets rarely triggers withholding but every dollar is still taxable. Setting aside roughly 25 to 30 percent of a large win for federal tax is a reasonable starting point, though your actual rate depends on your total income and bracket. Under the 2026 rule, remember that your losses will not fully wipe out those winnings even if they match them.