Deducting Gambling Losses

Among other things, the One Big Beautiful Bill Act (OBBBA) passed by Congress in July 2025 changed the rules relating to deducting gambling losses on individual tax returns. The new law’s provisions became effective on January 1, 2026, so we wanted to let you know what the changes are.

Let’s talk about what gambling income is and what the old rules were and then address the new rules. If you are in the trade or business of gambling, a professional gambler, the rules discussed here may or may not apply to you.

Unchanged Rules

Gambling winnings have always been and continue to be fully taxable and must be reported on your tax return regardless of the source, amount, or location where the gambling took place. Gambling income includes winnings from lotteries, raffles, sports betting, horse and dog races, wagering pools, and casinos. It also includes cash prizes and the fair market value of non-cash prizes, such as cars or trips. Cash or non-cash winnings from charity sponsored wagering events should also be included in taxable income.

You also need to be aware that amounts paid for raffle tickets or other games of chance for the benefit of a church or charity are not deductible as charitable contributions even if you didn’t win anything or your intent was to simply make a contribution to the charity. However, the amounts paid can constitute wagering losses up to the amount of winnings.

Payers are generally required to report winnings to you on Form W-2G if they exceed $2,000, but you must also report any winnings not reported on a W-2G.

To deduct gambling losses you have to itemize deductions on Schedule A. You can’t merely subtract your gambling losses from your winnings and report the difference on your tax return. If you claim the standard deduction, that is you don’t itemize, all your winnings are taxable income.

You cannot use gambling losses to offset other forms of income, and you can never report a net gambling loss on your tax return.

Old Rules

The old tax law allowed a 100 percent deduction of wagering losses up to the amount of the taxpayer’s gains. For example, suppose you won $100,000 gambling and lost $100,000 in the same year. Under the old law, your taxable income from wagering would be $0 ($100,000 win minus the $100,000 loss).

New Rules

Beginning on January 1, 2026 under the OBBBA changes, a taxpayer will be allowed a deduction for gambling losses equal to 90 percent of the losses for the year, and only to the extent of the taxpayer’s gambling gains for that year. Using our example above to calculate taxable gambling income under the new law, the taxable income would now be $10,000 ($100,000 gain – 90% of $100,000 or $90,000) rather than $0. Adding insult to injury, the taxpayer has taxable income of $10,000 even though they had no economic gain. Breaking even in gambling is no longer tax neutral.

There have been some efforts in Congress to restore the 100 percent deduction, but there is no indication that this will happen any time soon. Therefore, if you have 2026 gambling winnings or losses, document the wins and losses carefully and do some proactive tax planning.

Documentation requirements

Document winnings and losses by keeping receipts, tickets, and statements or other records that show the amounts involved. The IRS has historically required a diary or log of gambling activity containing details such as dates, locations, amounts won or lost, and the types of wagering activities engaged in.

Unresolved Issues

The IRS has not yet issued official guidance specifically addressing winnings in prediction markets, leaving the tax treatment of these gains open to interpretation. The most conservative treatment of winnings from prediction markets is to regard them as gambling income. Some believe winnings in these markets should be treated like property or crypto transactions, where gains are capital gains, and gains and losses can be fully netted against each other. We think this is a fairly aggressive approach and believe the IRS will not allow it once their guidance becomes available. If you have winnings from prediction markets this year, how you treat the income on your 2026 tax return will depend on your risk tolerance.

R&A Can Help

While we at R&A do not promote gambling, we do promote compliance with tax laws if you choose to gamble. Gambling income and losses can create some complicated scenarios for your tax return. If you have questions or need help navigating the new laws, give one of our tax professionals a call. We can answer your questions and help you accurately report gambling wins and losses.