The passage of the OBBBA surprised taxpayers and professionals with one crucial rule change affecting gamblers. To me, it seems illogical. Beginning with the 2026 tax returns, taxpayers can only deduct 90% of their gambling losses against their gambling income. As with the prior law, OBBBA limits the deductible losses to the amount of gambling income.
The New Rule
To determine the proper deduction, taxpayers will have to do two calculations.
First, they must reduce their gambling losses by 10%. For example, if their losses were $50,000, they can only use $45,000 (90% of $50,000) to offset their gambling income.
Second, the rule limits losses to the amount of their gambling winnings. For example, if gambling winnings were $40,000, then only $40,000 of the $45,000 of allowable losses can offset the winnings. This means no taxable income or loss results from their gambling activities.
Assume that gambling winnings were $50,000 instead of the $40,000 in the above example. The allowable gambling losses of $45,000 would result in taxable gambling winnings of $5,000. However, the taxpayer broke even (he won $50,000, but also lost $50,000 in the real world).
Where is the logic in this new law? Under prior law (which governs these gambling transactions until the end of 2025), this taxpayer would have neither a profit nor a loss to affect his taxable income.
Consider a professional gambler who has winnings of $300,000 in 2026 and losses of $330,000. In the real-world scenario, he lost $30,000 that year. However, under the new rules, reducing the $330,000 in losses by 10% results in an allowable loss of $297,000. This is less than his winnings of $300,000. He will add $3,000 to his taxable income (and pay tax on that amount), despite losing $30,000 in that year.
Gamblers need to remember that gambling activity (wins and losses) must be well documented. Using player cards that register gambling activity can certainly help, along with contemporaneously prepared logs of gambling activity. Receipts for gambling bets (such as betting on racehorses) are also necessary to establish the deductibility of the losses.
Pending Legislation
I read one source stating the Senate added this new gambling provision during their consideration of the Bill without House consideration. Consequently, U.S. Representative Dina Titus, who represents part of Las Vegas, recently introduced a Bill that would restore the prior rule of allowing for the deduction of 100% of the gambling losses. This Bill is the Fair Accounting for Income Realized from Betting Earnings Taxation Act (known as the “FAIR BET ACT”). It proposes to allow gamblers to deduct all their losses against gambling winnings, not just 90% of the losses. We will watch and see if this Bill passes and the President signs it.
Gambling Sessions
While on the topic of gambling, I want to mention the concept of a gambling session. There is no definitive definition of what constitutes a session. Typically, it refers to any period of play at the same game within the same establishment, lasting up to a day. The IRS proposed a safe harbor for determining a gambling session for slot machine gambling.
A session is any period of continuous slot play at the same gaming establishment for up to one calendar day. Keep in mind that during a session, a significant win may occur, and the establishment will issue a W-2G Form for that win (for slots, this applies to any win of $1,200 or more). However, when looking at a taxpayer’s entire session of play, overall losses may exceed the wins.
In that circumstance, you would not report the individual W-2G amounts as gross income from that session, nor would you claim the losses as an itemized deduction. You would net the winnings and losses, and you would either include the “net” amount in income or report it as a loss on Schedule A for that session.
You need to be alert to the fact that the IRS matches W-2Gs (as well as other information documents) to the return and may want to audit that return for what they believe may be unreported income. Minimize the audit potential by explaining the discrepancy between the W-2G income and the reported gambling income on Form 8275, citing two authorities as support for the session treatment. Those authorities – Chief Counsel Memorandum 2008-011 and Shollenberger v Commissioner – determined that taxpayers should use the session method for tracking wins and losses.