For years, the most common question we got around gambling and taxes related to the taxable jackpot level and when Congress (or the IRS) would finally act on it. For now, that question has been supplanted by a new one:
I heard the Big Beautiful Bill that was just passed will have an effect on how gambling taxes are paid to the IRS. Can you explain this new law?
Maureen F.
And
The new Mega Bill that passed in the USA would update the tax code, capping the deduction to 90% of losses. How’s this going to affect us at the Casinos?
Jeff B.
The original draft of the bill developed in the House had nothing of note, but when it was handed to the Senate to review, a new clause was added, reducing the amount of losses that could be deducted against winnings on your Federal tax return (when itemizing, as this is not allowed through the standard deduction) from 100% to 90%. This is scheduled to take effect with the 2026 tax year.
First off, part of the confusion we’re seeing in the casino community is that it’s being reported two ways: up to 90% of your winnings can be deducted with losses, or up to 90% of your losses can be deducted against your winnings. Reviewing how various media outlets were reporting on this, some also picked better examples than others to help players understand the impact.
So let’s dive in a bit, but before we do, here’s your friendly reminder: we aren’t accountants, and this should not be interpreted as tax advice. We’re just trying to help you figure out how this could impact you.
Let’s start with a look at the specific language in the bill, and it says:
SEC. 70114. EXTENSION AND MODIFICATION OF LIMITATION ON WAGERING
LOSSES.
(a) In General.–Section 165 is amended by striking subsection (d) and inserting the following:
“(d) Wagering Losses.–
“(1) In general.–For purposes of losses from wagering transactions, the amount allowed as a deduction for any taxable year–
“(A) shall be equal to 90 percent of the amount of such losses during such taxable year, and
“(B) shall be allowed only to the extent of the gains from such transactions during such taxable year.
“(2) Special rule.–For purposes of paragraph (1), the term `losses from wagering transactions’ includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction.”.
(b) Effective Date.–The amendment made by this section shall apply to taxable years beginning after December 31, 2025.
The language specifies losses as the key number being adjusted, so that helps for framing what will happen under these new rules.
For players who netted a gambling win, only having 90 percent of losses to deduct means more income to be taxed against. For poker players making a living playing, for instance, this would be impactful. Sharper sports bettors who are able to generate a profit on their bets over the course of a year may face similar challenges.
On the other hand, there is a bloc of gamblers who can itemize and have losses that far exceed the winnings. Many gamblers may get wins at some point in the year, but have way more losses on the other side of the ledger. Take the example of a player who wins $10,000 in jackpots and gambling sessions, but in the end still lost $20,000 for the year.
If 90% of losses was the cap, that’s still $18,000 of losses available to deduct against that $10,000 of wins (you cannot deduct losses that exceed your wins even today). So that group would see no change, because they simply have enough losses to cover the wins even with the reduction.
Another less welcome scenario would be one where you lose, but not significantly more than your wins. If you win $10,000, but lose only a bit more, like $11,000, in this case your gambling deduction is capped at $9,900, and that means you’ll be taxed on $100 in income (at your income tax bracket, so not the full $100 is paid in taxes).
Since you don’t know where you’ll finish until the year’s over, that could sneak up on players who don’t realize they’ll now owe. Bigger gamblers might see a couple of zeros added to both, so it could get more tricky (and expensive).
So the net outcome, based on the way it’s written, seems to impact some scenarios far more than others, but does effectively reflect a tax increase on some players, and certainly a risk for anyone who gambles that they may end up owing in scenarios where they used to be in the clear.
One good piece of news is that it doesn’t take effect until the next tax year, meaning no one will be impacted this year. And that presumes nothing changes, given that tax year won’t even be filed by taxpayers until the year’s complete, in early 2027. Bills have been proposed in both the House and the Senate that would revert this back to the original 100 percent deduction of losses. It is gaining bipartisan support and is backed by the American Gaming Association.
However, before we get too excited, it’s important to note that given how little momentum other gambler-friendly changes to tax rules, such as raising the $1,200 taxable jackpot threshold, there’s no guarantee this will go through. And even if it is reversed, it could be revived in a future bill.
The reality is gambling taxes, like other “sin” taxes, are juicy targets when attempting to balance budgets. At the state level, a number of states proposed tax increases on sports betting and iGaming this year, and some went through. More increases are expected in the coming years.
Just like states would consider raising taxes on products like cigarettes to boost revenues when they were more popular, gambling is another one that offers revenue boosting opportunities to close deficits during difficult economic periods. And the growing popularity and revenue numbers in areas such as sports betting make it an even bigger target in the future.
For those looking to keep up with the latest, industry publications like CDC Gaming have been helpful sources for those seeking up to date reporting on the changes. And if any big changes happen, we’ll be sure to share them here on Flip The Switch.
It’s also important to note with all the attention at the federal level, none of this changes what happens at the individual state level, which can vary based on state-level taxation laws on income. So it’s still important to be versed at what’s happening at both the federal and state level, at least in terms of where you live and where you gamble.
Now, back to the jackpot taxable level. Some outlets are reporting that the bill increases the jackpot threshold from $1,200 to $2,000. We looked at this and believe that interpretation is incorrect, because it relates to miscellaneous income, such as those earned by freelancers or contractors, not for gambling wins. Others concur with our understanding, but the American Gaming Association and Nevada U.S. representative Dina Titus (who proposed the fix to revert the other change back to 100%), say it was increased.
As Russell Fox says in his post, a clarification or rule update could offer more assurances here, but in the absence of that, players shouldn’t hold out much hope at the moment for an increase, a sentiment we’ve previously shared. UPDATE: As more outlets begin to report that the taxable jackpot level was increased, we share in this post why we’re not ready to declare victory just yet.
There’s a lot of noise out there right now, and just shows how complicated this bill is, given the amount of ground it aimed to cover in one shot.
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