The recent focus in the US tax code is not on ending taxes on gambling winnings, but on a new provision that could dramatically increase the tax burden for many gamblers. Included in a comprehensive tax bill, a provision set to take effect in January 2026 limits the deduction of gambling losses against winnings.
Instead of eliminating the tax, this change creates the potential for gamblers—especially high-volume players—to be taxed on money they never actually made, a situation opponents call “phantom income.”
The Rule Change: Deductions Capped at 90%
Under the previous federal law, a gambler could deduct 100% of their losses against their winnings, up to the amount of the winnings. This ensured that if a person broke even or lost money overall, they paid no federal income tax on their gambling activity.
The new rule, set to begin in 2026, limits the deduction of gambling losses to 90% of winnings.
| Scenario | Winnings | Losses | Deductible Losses (Pre-2026) | Taxable Income (Pre-2026) | Taxable Income (Post-2026) |
|---|---|---|---|---|---|
| Breakeven | $100,000 | $100,000 | $100,000 | $0 | $10,000 |
| Small Profit | $5.2 Million | $5 Million | $5 Million | $200,000 | $700,000 |
The Congressional Joint Committee on Taxation (JCT) estimates that this change is intended to raise approximately $1.1 billion in federal revenue over ten years.
Impact on American Gamblers and the Industry
This change has generated widespread concern among both professional and recreational gamblers, as well as casino operators:
1. The Burden on Professional Gamblers
Professional players, who often operate with very thin profit margins, face the steepest tax hike.
- Phantom Income: A professional who wins $5.2 million and loses $5 million has a net profit of $200,000. Under the new law, they can only deduct $4.5 million (90% of $5 million) of their losses. Their taxable income jumps to $700,000, which is an effective tax increase of 250% on their real earnings.
- Wiping Out Profit: Some professional players warn that the tax liability on this “phantom income” could exceed their actual net winnings, effectively forcing them to operate at a net financial loss for the year.
2. The Risk of Driving Activity to the Black Market
Industry critics, including Nevada Representative Dina Titus, argue the change will hurt the legal, regulated gaming industry.
- The provision creates a tax disadvantage for players using regulated books and casinos, making unregulated, offshore, or local black markets more appealing since they offer better effective odds by avoiding taxes.
- This shift could lead to a net loss in overall tax collections for both federal and state governments, as the illegal market pays no taxes.
3. Impact on Casual Players
Recreational gamblers who play frequently or place high-value bets are also affected.
- Itemizing Deductions: Only taxpayers who itemize their deductions can claim gambling losses. Since most Americans take the standard deduction (which in 2025 is $15,300 for single filers), they will continue to be taxed on their gross winnings without being able to deduct their losses at all.
- The new 90% cap specifically penalizes high-volume recreational players, such as those who regularly travel for tournaments or bet large amounts on sports, forcing them to pay tax even on a breakeven year, which is a departure from how income is typically taxed.
The change signals a shift that many critics argue treats gambling income differently and more harshly than other investment or business income, where full deductibility of losses and expenses is standard practice.
