A federal tax law change that took effect in 2026 limits the deduction for gambling losses. Under the new rule, taxpayers can generally deduct only 90% of qualifying gambling losses, up to the amount of their gambling winnings. As a result, some taxpayers may owe tax on gambling income even if their total winnings and losses offset each other.
How Are Gambling Winnings and Losses Taxed?
Gambling winnings are generally taxable and must be reported on your federal income tax return. This includes winnings from casinos, lotteries, horse racing, sports betting, and other wagering activities. You may need to report winnings even if you do not receive Form W-2G.
For casual gamblers, gambling losses are generally deductible only if you itemize deductions. Beginning with the 2026 tax year, the deduction is limited to the lesser of:
90% of qualifying gambling losses, or
The total amount of gambling winnings.
Under the rules that generally applied through 2025, taxpayers who itemized could deduct qualifying gambling losses up to the amount of their winnings. The new 90% limit means a portion of gambling losses may no longer be deductible, even when losses equal or exceed winnings.
What Does the New Rule Mean for Taxpayers?
Consider a taxpayer who reports $100,000 in gambling winnings and $100,000 in qualifying gambling losses during 2026.
Under the new rule, the deductible loss would be limited to $90,000. The remaining $10,000 in losses would not be deductible, potentially leaving the taxpayer with $10,000 in net taxable gambling income despite breaking even overall.
The actual tax implications depend on the taxpayer’s circumstances, including other income, deductions, and applicable tax rules.
Keep Accurate Records of Gambling Activity
Good recordkeeping is important when reporting gambling income and claiming eligible losses. Taxpayers should maintain a record of their gambling activity, including:
- Dates and types of wagers
- Names and locations of gambling establishments
- Amounts won and lost
- Wagering tickets, receipts, statements, and other supporting documentation
- Forms W-2G, when issued
Keep records of winnings and losses separately, and retain supporting documentation in case the IRS requests it.
For additional guidance, consult the IRS’s Topic No. 419, Gambling Income and Losses.
Has the Rule Been Changed?
Legislation to restore the full deduction for qualifying gambling losses advanced through a House committee in September 2026. However, committee approval does not change the law. The 90% limitation remains in effect under the rules currently applicable to the 2026 tax year.
Taxpayers should follow the rules currently in effect when preparing their returns and consult a qualified tax professional about how the limitation applies to their circumstances.