Gamblers who finish the year with exactly as much in losses as winnings will owe federal income tax for the first time starting with their 2026 returns. The change, enacted through the One Big Beautiful Bill signed on July 4, 2025, caps the deduction for wagering losses at 90 percent of the loss amount. In a worked example published by the IRS, a taxpayer reporting $100,000 in winnings and $100,000 in losses can now subtract only $90,000, leaving $10,000 in taxable income on what was once a break-even year.
How a 10-Percent Haircut Creates Tax on Zero Profit
Until December 31, 2025, federal law allowed itemizing gamblers to deduct wagering losses dollar-for-dollar against winnings, up to the amount won. A bettor who won $50,000 and lost $50,000 reported zero net gambling income. That full-offset treatment is now gone. Public Law 119-21 amended Section 165(d) of the Internal Revenue Code, and the new rule applies to taxable years beginning after December 31, 2025. Every dollar of loss now yields only 90 cents of deduction.
The math scales with volume. A recreational poker player with $20,000 in annual wins and $20,000 in losses would face $2,000 of taxable income. A high-volume sports bettor cycling $500,000 through sportsbook accounts could see $50,000 of phantom income. The tax rate applied to that income depends on the filer’s bracket, but the structural point is the same: breaking even no longer means owing nothing. The IRS explains the mechanics in its One Big Beautiful Bill overview, using a $100,000 example that produces $10,000 of taxable income despite no net gain.
The provision also permanently expands the definition of wagering losses to include otherwise-allowable deductions incurred in connection with gambling activity. The Congressional Research Service discussion of Section 70114 confirms both changes: the 90-percent cap and the broadened loss definition. That second piece means expenses a gambler might have claimed under other code sections, such as travel or professional fees tied to wagering, now fall under the same 90-percent ceiling rather than being deducted separately at full value.
Missing Data on How Many Filers Will Be Hit
No official revenue estimate tied specifically to the 90-percent cap has been published by the IRS or the Congressional Research Service in their available materials on the provision. The CRS report describes the mechanics of the change but does not attach a dollar figure for projected revenue or an estimate of affected taxpayers. IRS Statistics of Income tables that would show pre- and post-2026 gambling-loss deduction volumes have not yet been released for the relevant filing year.
That gap matters because the real-world impact depends heavily on how many filers itemize gambling losses in the first place. Taxpayers who take the standard deduction already receive no benefit from reporting losses, so the 90-percent cap changes nothing for them. The new rule hits only those who both report significant gambling winnings and choose to itemize deductions, typically because their mortgage interest, state and local taxes, charitable gifts, and other eligible amounts exceed the standard deduction.
Within that narrower group, the effect will vary with betting patterns. Casual lottery players who occasionally win a few hundred dollars but never track their losing tickets will see little change, because they were not deducting losses before. By contrast, frequent casino patrons, poker players, and sports bettors who carefully log each wager and obtain win-loss statements from operators will feel the new haircut most acutely. For them, a year of heavy betting that merely breaks even economically will now show up on Form 1040 as positive income.
The absence of precise counts has not stopped practitioners from anticipating administrative headaches. Tax professionals note that gamblers already struggle to document losses to the IRS’s satisfaction, especially when using multiple online platforms and in-person venues. The new 90-percent ceiling adds another layer of calculation and may prompt more correspondence audits focused on substantiation. Taxpayers who receive automated notices questioning their figures are likely to be directed to tools such as the IRS’s online account portal to review balances, set up payments, or respond to inquiries.
Planning Around “Phantom” Income
For individuals who expect to continue gambling at similar volumes after 2025, the policy takeaway is straightforward: a break-even year will no longer be tax-neutral. Some may choose to scale back activity to avoid pushing their adjusted gross income into higher marginal brackets or triggering phaseouts tied to income thresholds. Others may decide that, if they are going to incur taxable income anyway, they will concentrate wagers into fewer, higher-conviction bets rather than a large number of small ones that increase total volume without improving expected profit.
Advisers also stress the importance of meticulous recordkeeping. Because only 90 percent of documented losses are deductible, any loss that cannot be substantiated is effectively treated as a full dollar of income. Maintaining logs, retaining tickets and statements, and consolidating play with operators that provide clear annual summaries can reduce the risk that documentation gaps inflate tax bills even beyond what the new law requires.
What the One Big Beautiful Bill does not change is the basic principle that gambling losses remain deductible only up to the amount of winnings. The 90-percent cap simply adds a new layer of limitation on top of that longstanding rule. For taxpayers who gamble often enough to care, the result is a subtle but significant shift: the federal tax system will now treat zero economic profit as a taxable event.
