One of the most misunderstood areas of federal income taxation involves the treatment of gambling winnings and losses. Many taxpayers assume that if they win $20,000 during the year but lose $19,500 overall, they simply report a net gambling profit of $500. Others believe every spin of a slot machine is a separate taxable event. Neither view accurately reflects the current state of the law.
The proper determination lies somewhere between these two extremes.
The General Rule
Internal Revenue Code Section 165(d) provides that gambling losses are deductible only to the extent of gambling winnings. In other words, taxpayers cannot use gambling losses to create a net tax loss from gambling activity.
The more difficult question is determining what constitutes a “win” and a “loss.”
Should each pull of a slot machine be viewed separately? Should an entire visit to a casino be treated as one transaction? Or should everything be netted together over the course of the year?
The answer depends upon the concept of a gambling session.
The Evolution of the “Gambling Session”
For many years, taxpayers and the IRS debated whether every individual wager constituted a separate taxable event. This approach created impractical results for casino patrons. A player might make thousands of slot machine wagers during an evening, generating countless small wins and losses.
Several court decisions recognized that this approach did not accurately reflect the economic reality of casino gambling. The courts instead endorsed the concept of a gambling “session” as the appropriate unit for measuring gains and losses from certain continuous forms of wagering.
For example, a slot machine player who begins with $1,000, plays continuously for several hours, and leaves with $1,400 generally realizes a $400 gain for that gambling session—not thousands of separate taxable wins and losses.
Likewise, if the player leaves with $600, the session reflects a $400 loss.
What Constitutes a Gambling Session?
Unfortunately, the Internal Revenue Code does not define a gambling session, and there is no bright-line rule.
Instead, the concept has developed through case law and IRS guidance.
Generally, a gambling session consists of continuous play of the same type of game without a meaningful interruption.
Factors that may indicate a single session include:
- Continuous play at slot machines.
- Continuous blackjack play at one or more tables.
- Play without leaving the casino for an extended period.
- No substantial interruption for unrelated activities.
- Consistent wagering of the same game.
Conversely, separate sessions may exist where the taxpayer:
- Leaves the casino and returns later.
- Stops gambling for several hours.
- Changes in gambling activities after a substantial break.
- Gambles on different days.
The determination is factual rather than mechanical.
Does an Entire Casino Visit Count as One Session?
Not necessarily.
Suppose a taxpayer arrives at a casino at noon. They play slot machines until 3:00 p.m. Afterward, they eat dinner, attend a concert, spend several hours with friends, and then return to the casino at 10:00 p.m. for another round of slot play.
Most tax practitioners would likely view these as two separate gambling sessions because the gambling activity was interrupted by a substantial break. By contrast, briefly stopping for a drink or walking to another bank of slot machines ordinarily would not terminate a session.
Annual Netting Is Not Permitted
One common misconception is that all gambling activity for the year can simply be reduced to a single number. Federal tax law does not permit annual netting in this manner. Instead, taxpayers determine the gain or loss from each gambling session.
Winning sessions produce gambling income. Losing sessions generate gambling losses. At year-end, gambling losses remain deductible only up to the amount of total gambling winnings under Section 165(d).
For example:
- Session 1: +$800
- Session 2: -$500
- Session 3: +$1,000
- Session 4: -$1,200
The taxpayer reports $1,800 of gambling winnings from the winning sessions.
The taxpayer has $1,700 of gambling losses from the losing sessions.
The losses are deductible only up to the amount of winnings, resulting in a net economic gain of $100, but the reporting reflects gross winnings and deductible losses rather than simple annual netting.
This is the general rule for gambling losses through tax year 2025.
The OBBBC that was passed in 2025 changed this for tax year 2026 and beyond. Now, only 90% of the total losses can be used as a deduction against gambling wins. 10% of gambling losses are lost forever. Further, the deductible amount of gambling losses still cannot exceed the gambling winnings.
Why Recordkeeping Matters
The IRS expects taxpayers to maintain contemporaneous records supporting both winnings and losses.
Good records typically include:
- Date of each gambling session.
- Casino name and location.
- Type of gambling.
- Starting bankroll.
- Ending bankroll.
- Duration of play.
- Supporting documents such as wagering statements, casino player-card records, ATM receipts, canceled checks, and Forms W-2G.
Casino win/loss statements can be helpful, but standing alone, they generally are not considered conclusive proof of deductible gambling losses. They are best used together with a contemporaneous gambling log and other supporting documentation.
Professional Gamblers
Professional gamblers generally determine gains and losses using the same principles for a given session. However, because gambling constitutes a trade or business for these taxpayers, additional tax rules affect the reporting of business income and expenses.
Following the changes made by the Tax Cuts and Jobs Act, professional gamblers remain subject to the limitation that gambling losses (and certain related expenses) generally cannot exceed gambling winnings.
Practical Takeaway
The proper measurement of gambling gains and losses is neither every individual wager nor one annual net amount.
Instead, taxpayers generally measure the net result of each gambling session. Winning sessions produce taxable gambling income, while losing sessions generate deductible gambling losses, subject to the limitation that total losses cannot exceed total winnings for the year.
For most casino patrons, maintaining accurate session-by-session records provides the strongest support for the amounts reported on a federal income tax return and is consistent with the approach recognized by the courts and accepted by the IRS.