Federal Cap on Gambling Loss Deductions Set for January 2026
In a significant shift for gamblers and tax professionals, the One Big Beautiful Bill Act (OBBBA) introduces a new federal cap on gambling loss deductions effective January 1, 2026. According to Jones Walker LLP, this change modifies section 165(d) of the Internal Revenue Code, limiting the deductibility of losses to 90% of winnings. This legislative development impacts all forms of gambling, including sports betting, casinos, and lotteries, leading to potential taxation on so-called "phantom income."
📌 Key Takeaways
- Cap gambling loss deductions at 90% from 2026
- Introduce FAIR BET Act to restore 100% deductions
- Raise slot reporting threshold to $2,000
Understanding the 90% Deduction Cap
The OBBBA restricts gamblers to deducting only 90% of their documented losses against winnings, a decrease from the previous 100% allowance. This change, as explained by Plunkett Cooney, may result in taxable income even in scenarios of net-zero gains. For instance, if a gambler wins $10,000 and loses $10,000, only $9,000 of the losses can be deducted, leaving $1,000 as taxable "phantom income." The implications are significant for both casual and high-stakes gamblers, who may face unexpected tax liabilities.
may result in taxable income even in scenarios of net-zero gains
Potential Impact on Gamblers and the Industry
This new tax regulation could disproportionately affect high rollers and frequent gamblers. As noted by ARB CPA, these players often experience substantial wins and losses, and the deduction cap may lead to increased tax burdens. Furthermore, the IRS's updated rule coincides with an increase in the reporting threshold for slot machine winnings from $1,200 to $2,000, as reported by Economic Times, potentially benefiting casual gamblers by reducing the frequency of required tax filings.
Legislative Response and the FAIR BET Act
In response to the OBBBA, the FAIR BET Act (H.R. 4304) has been introduced by Rep. Dina Titus, aiming to restore the full 100% deduction for gambling losses. According to Action Network, this bill seeks to address concerns over the fairness of taxing "phantom income." The debate highlights the ongoing tension between generating federal revenue and ensuring equitable tax treatment for gamblers.
Industry and Expert Reactions
Industry stakeholders express mixed reactions to the new deduction cap. Casino operators like MGM Resorts and Caesars Entertainment worry about potential declines in high-stakes play, which could impact overall revenue. Tax experts from Silver Law PLC suggest that gamblers may need to adjust their strategies and potentially engage more with tax professionals to optimize their returns.
Future Implications for the Gambling Market
The implementation of the 90% deduction cap marks a pivotal moment for the gambling market, potentially influencing betting behaviors and tax strategies. As articulated by Taxes for Expats, the rule may drive more players to seek alternative gambling avenues or adjust their betting habits to mitigate tax liabilities. With ongoing legislative efforts like the FAIR BET Act, the landscape of gambling taxation remains dynamic, and stakeholders must remain vigilant to adapt to future changes.