Summary
One Big Beautiful Bill wagering losses changes how gamblers deduct losses, capping deductions at 90 percent of documented losses and tying them to winnings starting in 2026. Learn how Break‑Even, Hot Streak, Rough Year, and High‑Volume Pro scenarios play out under the new code section, and discover planning tips to manage your tax exposure.
Table of Contents
- Introduction
- What the 90 Percent Deduction Cap Means
- Walking Through the Four Scenarios
- Questions About Interpretation
- Proposed Legislation
- Looking Ahead
Introduction
The One Big Beautiful Bill ushers in a major shift for recreational and professional gamblers alike. As of January 1, 2026, the familiar practice of deducting gambling losses dollar‑for‑dollar against winnings gives way to a two‑step limitation: first trimming total losses by ten percent, then ensuring those reduced losses cannot exceed the year’s reported wins. This seemingly modest tweak creates scenarios in which even a perfectly balanced year of betting yields unexpected taxable income. For anyone with wagers large or small, understanding how this new rule functions—and preparing well in advance—will be essential.
What the 90 Percent Deduction Cap Means
Under today’s law, if you win $10,000 and lose $10,000 in the same tax year, you simply net out to zero for tax purposes, assuming you itemize and substantiate your activity. Beginning with the 2026 filing season, however, your deductible portion of those $10,000 in losses will be limited to $9,000. That $1,000 difference—no matter that it never touched your pocket—will be treated as taxable income. In effect, the tax code imposes a built‑in 10 percent “haircut” on losses before ever matching them against wins. Any losses beyond your wins simply vanish; you cannot carry them forward or apply them elsewhere.
Walking Through the Four Scenarios
To ground the concept in real‑world betting profiles, imagine four different gamblers over the course of a tax year: one who breaks even, another on a hot streak, a third enduring a rough patch, and a fourth wagering at professional volumes. Running each through the new “90 percent loss cap, then wins offset” formula shows how even identical win‑loss totals can yield wildly different tax outcomes—and illustrates current questions about interpretation of the new law.
Break‑Even Year — Imagine you walk away from a casino weekend having won exactly as much as you lost—$10,000 in each direction. Under the new law, you first compute 90 percent of your losses (0.9 × $10,000 = $9,000) and then subtract that from your $10,000 of winnings. The result: $1,000 of so‑called phantom income. In practical terms, you will owe taxes on money that, in reality, never entered your bank account.
Hot Streak Year — Now picture a banner year: $50,000 in winnings against $30,000 in losses. At first blush, you might assume your tax liability shrinks by the full $30,000. But after applying the 90 percent cap (0.9 × $30,000 = $27,000), you end up reporting $23,000 in net gambling income. The reward of a hot streak remains substantial, but the haircut on losses means you pay more tax than under current rules.
Rough Year — What about the gambler who loses more than wins? Suppose $8,000 in wins and $12,000 in losses. The first step still is the 90 percent reduction (producing a $10,800 cap), but since deductible losses cannot exceed reported winnings, you ultimately claim only $8,000 in deductions. You report zero taxable gambling income—and the extra $2,800 in losses simply disappears. This result feels fairer than some early industry illustrations which applied the win‑limit first, then the percentage cut, yielding a confusing negative “taxable” amount. By honoring the legislature’s sequencing—percentage cap, then win cap—the law avoids mathematically twisted outcomes.
High‑Volume Professional Year — For a full‑time bettor with $200,000 in gains offset by $220,000 in losses, the 90 percent rule reduces deductible losses to $198,000. Subtracting that from $200,000 leaves $2,000 of taxable income. Even seasoned pros face phantom liability—tax on $2,000 they didn’t net—simply for engaging in a high‑stakes pastime.
Questions About Interpretation
A central debate revolves around which limitation applies first. The statutory text places the 90 percent cap in subsection (d)(1)(A) and the win‑limit in (d)(1)(B). Applying them in that order produces intuitive results: you trim your losses, then see how they stack up against your wins. Reversing the sequence can yield baffling negative deductions and undermine taxpayer confidence. As official IRS guidance emerges, watch for language that confirms the intended drafting order—and be prepared to argue for a pro‑taxpayer interpretation if early pronouncements stray.
Proposed Legislation
The 90 percent limitation on gambling losses was a last-minute amendment in the Senate to the One Big Beautiful Bill. The original House resolution intended to only make the limitation of gambling losses equal to gambling winnings permanent. A new bill proposed in the House by Rep. Dina Titus (D-Nevada) and co-sponsored by Rep. Ro Khanna (D-California) known as The Fair Accounting for Income Realized from Betting Earnings Taxation Act, or the “FAIR BET” Act, intends to restore gambling loss deduction limits to 100 percent of gambling winnings. Since its proposal early on July 7, it has gained bipartisan support with Rep Troy Nehls (R-Texas).
Looking Ahead
With nearly a year and a half to prepare, savvy gamblers can turn the One Big Beautiful Bill’s first major tweak to wagering deductions in decades into an opportunity rather than a surprise. Begin by keeping impeccable records—casino statements, lodge logs, W‑2G forms, digital ledgers—so every win and loss is indisputable. High‑volume bettors may even explore electing trade‑or‑business status to access alternative deduction rules, while others can time larger wagers around calendar‑year boundaries to maximize write‑offs in big‑win years. Though the mandatory 10 percent haircut on losses may appear modest, its real‑world bite—especially in break‑even or loss‑heavy seasons—can be surprising.
At the same time, it’s worth watching legislative developments closely. With bipartisan support for the FAIR BET Act already gaining traction, it’s possible the current rules could shift again before 2026. Whether the current version stands or is revised, gamblers who understand the proposed changes, model their exposure under both outcomes, and adopt strong recordkeeping habits will be best positioned to weather whatever tax treatment ultimately takes hold.
Rob Gould-Wetmore is a Senior Accountant at ARB specializing in auditing and financial compliance services for auto dealerships, construction companies, and financial institutions. His experience in sales and use tax helps clients navigate complex or unique situations to streamline regulatory compliance.
