How the OBBB just made it trickier to write off gambling losses on your taxes
The One Big Beautiful Bill (OBBB) Act recently changed the rules for tax deductions on gambling losses. A new 90% cap on the gambling loss deduction may result in adverse tax outcomes for professional gamblers and others with gambling activity in tax years 2026 and beyond.
If that’s you, what do you need to know? Keep reading for a rundown on the new gambling loss deduction cap and what it could mean for your taxes.
The OBBB caps the gambling loss deduction at 90%
Before the OBBB became law, you could deduct 100% of your gambling losses as an itemized deduction to the extent of winnings. This was useful for eliminating some of the pain of losing wagers. If you won $100,000 and lost $100,000 in the same tax year, you would likely be able to deduct all of the loss, resulting in no additional taxable income due to that year’s gambling activity.
How does OBBB change gambling loss deductions going forward? Starting with the 2026 tax year, only 90% of gambling losses are deductible, to the extent of gambling winnings.
Under the new rule set, if you won $100,000 and lost $100,000, you can only deduct $90,000 of gambling losses as an itemized deduction. This would result in a net $10,000 increase to taxable income, despite breaking even on the year’s gambling activity.
Both casual and higher-volume gamblers now face the risk of phantom income — an unfortunate tax outcome in which your gambling losses may equal or even exceed your wins, but you still have net taxable income as a result of your gambling activity.
What is phantom income for gamblers?
Let’s dig a little deeper into the concept of phantom income. Here’s one scenario to consider:
You won $50,000 gambling during a certain tax year. However, you lost $53,000, so at the end of the year, you have no cash in hand from gambling.
However, because of the new deduction cap, you can only deduct up to 90% of that $53,000 — or $47,700 — from your taxes. As a result, you face a tax liability on $2,300 of gambling income, even though you lost money overall.
But that’s not the whole story, either. You can still even out your wins and losses on your federal taxes, provided that your losses exceed your wins by a certain amount.
The magic ratio here is roughly $10 lost for every $9 won. Using the same example as before, if you won $50,000 but lost more than $55,556, you would be able to deduct $50,000 in losses ($55,556 total gambling losses multiplied by a 90% loss limitation ratio equals a $50,000 deductible gambling loss) as an itemized deduction. This would result in a net-zero taxable impact.
The OBBB also includes new language about otherwise allowable deductions
Another wrinkle included in the OBBB is language that states that your gambling losses can include “otherwise allowable deductions incurred on carrying on a wagering transaction.” This could be a useful tool for gamblers looking to reach the 10-9 losses-to-wins ratio in order to break even on their taxes.
However, it is unclear as to what counts as an otherwise allowable deduction. The text of the OBBB itself doesn’t elaborate further. This is an area that tax advisors will be working to understand as additional guidance is issued by the IRS.
If you incur additional expenses while gambling, such as membership fees or travel costs, consult with your tax advisor to explore whether you may be able to include those costs in your gambling losses for the year.
How do you document your gambling losses to satisfy IRS requirements?
The fact that you have lost money gambling doesn’t mean you can automatically write it off on your taxes. You need to be able to provide documentation to support your losses.
What does and does not constitute proper documentation is complicated. The IRS can be particular about what it accepts. As with most things, the best kinds of records are detailed and kept contemporaneously with the activity.
On its own, an annual win/loss report from a casino is typically not enough to fully meet IRS documentation requirements. It can be helpful to sign up for a casino membership card, as casinos will generally provide more detailed win and loss records upon request to club card members.
To make sure you properly document gambling wins and losses for the purposes of a tax deduction, your best bet is to consult your tax advisor about your specific situation so you can receive individualized guidance.
The new gambling loss cap does not necessarily affect your state taxes
Another area to discuss with your tax advisor: If you plan to claim gambling losses on your taxes, you should remember that the OBBB only changed the federal tax code. The new rules around gambling loss deduction may have no bearing on the tax liability you might face at the state level.
Is the 90% gambling loss deduction cap here to stay?
Unsurprisingly, casinos, gaming organizations and professional gamblers are unhappy with the new 90% gambling loss deduction cap. Given that many professionals relied on the previous 100% deduction rule to make the economics of their business work out, the change could cause a pullback in gambling activity.
As a result, both Nevada senator Catherine Cortez Masto and Dina Titus, who represents Las Vegas in the House, have introduced separate legislation that would repeal the 90% loss cap and restore the older rule.
However, those affected should not count on a quick fix here. While there does appear to be support in Congress for passing one of these bills, the legislative process is slow and even popular legislation may fail to make it through.
While the cap may one day be restored to 100%, it seems unlikely that this will occur in the near future.
How Wipfli can help
We advise individuals with significant gambling income on how to maximize their tax benefits. Ask us to assess your tax strategy and provide guidance on how you can navigate the gambling loss deduction and other nuances in the tax code. Learn more here.
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