Gambling Taxes and the New 90% Loss Rule

By Tom, CPA · Updated October 27, 2026

Part of: Tax Planning

TL;DR: All gambling winnings are taxable. Starting in 2026, you can deduct only 90% of gambling losses, still capped at winnings and only if you itemize. That means a break-even year can create taxable income. Keep a diary and app histories to prove losses.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

The tax code is 4 million words long, and it treats gambling like a suspicious relative: every dollar you win is income, but the dollars you lose are only grudgingly acknowledged, and only if you itemize. Starting in 2026, it got worse. Under the 2025 tax act, you can deduct only 90% of your gambling losses, and still only up to your winnings. Break even at the casino and you can now owe tax on money you never actually made.

This guide covers what is taxable, W-2G forms and withholding, the new 90% loss rule, record-keeping, professional gamblers, sports betting apps and state issues. Law as of Oct 2026.

CPA Warning Label: Large loss claims without records are an audit magnet. The 90% rule is current law as of Oct 2026, and states may treat losses differently.

All winnings are taxable

Gambling winnings are fully taxable income: casino games, slot jackpots, lotteries, raffles, horse racing, poker tournaments, sports betting apps, fantasy sports prizes and the fair market value of non-cash prizes like cars and trips. You report all of them on Schedule 1 of Form 1040, whether or not you get a form.

Winnings are figured per session or per wager, not as one annual net number. If you hit a $3,000 jackpot and then lose it all back, you still have $3,000 of winnings to report, and the losses are a separate itemized deduction. That structure is what makes gambling taxes so painful for standard-deduction filers.

Winnings also increase AGI, which can raise the taxable share of Social Security benefits, push you into Medicare IRMAA surcharges, reduce ACA premium credits, and phase out other benefits. A lucky weekend can have a long tail.

Form W-2G and withholding

Payers issue Form W-2G when winnings exceed certain thresholds that vary by game type, or when federal income tax was withheld. Thresholds were adjusted by the 2025 tax act for 2026 and later; check the current W-2G instructions. Not getting a form does not make winnings tax-free.

Federal withholding of 24% generally applies to certain larger winnings, such as lottery prizes and wagers paying more than $5,000 at sufficiently long odds. Backup withholding applies if you do not provide a taxpayer ID. Withholding is a down payment, not your final tax; if your bracket is 32% or more, expect to owe at filing.

Sports betting apps typically issue W-2Gs only for big single-bet payouts. Most bettors with steady activity will not receive one, but they still owe tax on net winning sessions. Download your full yearly transaction history from each app.

The 90% loss rule (new for 2026)

Under section 165(d) as amended by Public Law 119-21, for tax years beginning after 2025:

• Losses from wagering transactions are deductible at 90% of the amount lost.
• The deduction is still limited to the amount of gambling winnings.
• The 90% applies to the total of wagering losses plus other expenses of carrying on wagering (travel, for example), which for professionals were previously allowed in full against winnings.

Practical effect: a gambler with $50,000 of winnings and $50,000 of losses previously reported net zero (if itemizing). From 2026 they deduct only $45,000 and owe tax on $5,000 of phantom income. Congress has seen proposals to restore 100%, but as of Oct 2026 the 90% rule is law.

Losses remain an itemized deduction on Schedule A. If you take the standard deduction ($32,200 married filing jointly, $16,100 single in 2026), you deduct nothing and owe tax on all winnings.

Illustration: a break-even year

Illustration: a married couple filing jointly in 2026 bets on sports apps and visits a casino twice. Their records show:

If they itemize: deductible losses = 90% × $42,000 = $37,800, under the $40,000 winnings cap. Taxable net: $2,200. At 22%, about $484 of federal tax on a year they lost $2,000.

If they take the standard deduction: all $40,000 is taxable. At 22%, about $8,800, unless the losses push their itemized total above $32,200, in which case itemizing wins. Here, $37,800 of gambling losses alone exceeds the standard deduction, so they would itemize.

Under 2025 rules, the same couple deducted $40,000 (capped at winnings) and owed nothing.

Assumptions: 22% bracket, no other itemized items, no state tax.

Records that hold up

The IRS requires an accurate diary or similar record, plus supporting documents. Publication 529 and Topic 419 point to keeping:

• Date and type of each wager or session.
• Name and address of the venue or app.
• Names of people with you, for in-person play.
• Amounts won and lost.
• Supporting proof: W-2Gs, casino player's card statements, app histories, bank withdrawals, betting slips, lottery tickets.

Make the diary a habit, not a January reconstruction. A note on your phone after each session, with the date, place, game, starting stake and ending stake, takes thirty seconds and is exactly what an examiner wants to see. Reconstructed logs built from memory months later are given little weight.

Casino win/loss statements help but are estimates. Sports app exports are better because each bet is time-stamped. Big losses claimed without records are a classic audit target.

Professional gamblers

A professional gambler reports on Schedule C and pays self-employment tax on net profit. The bar is high: gambling must be pursued full time, regularly, with the intent to make a profit, in a businesslike manner. Most serious hobbyists do not qualify.

Professionals were hit by the 90% rule too, since it covers expenses of carrying on wagering as well as losses. A professional cannot create a net loss from gambling to offset other income.

Claiming professional status to dodge the itemizing requirement invites scrutiny and adds 15.3% SE tax on profits. Run the numbers honestly.

Planning moves that still work

The 90% rule cannot be planned away, but some choices still reduce the damage:

• Track sessions carefully. The IRS allows session-based reporting for slot play, netting wins and losses within a single session of play. Session netting reduces gross winnings, which lowers AGI. That matters because winnings raise AGI even when losses offset them on Schedule A.
• Bunch itemized deductions. If your gambling losses plus mortgage interest, state taxes and charity land near the standard deduction, bunching charity into the same year can tip you into itemizing.
• Avoid big wins in benefit-sensitive years. Retirees on Medicare or early retirees on ACA plans should know that winnings count in MAGI. A $20,000 jackpot can cost far more than its tax through lost premium credits or IRMAA two years later.
• Set aside tax on the spot. If you hit something big with only 24% withheld, move the shortfall to savings immediately and consider an estimated payment.
• Treat it as entertainment spending. Budget gambling like any hobby, and the tax hit becomes part of the price of the hobby rather than a surprise.

And if gambling is creating financial stress, the national helpline 1-800-GAMBLER is free and confidential.

State taxes and other wrinkles

• States vary. Some states tax winnings but allow no loss deduction at all. Nonresidents may owe tax to the state where they won. See state income tax planning.
• Lottery annuity vs lump sum. Annuity payments are taxed as received; lump sums all hit one year, often at 37%.
• Office pools and raffles are winnings too, and so are game show prizes and sweepstakes awards, valued at fair market value even if you never wanted the jet ski.
• Shared winnings. If you split a jackpot with friends, Form 5754 lets the payer issue separate W-2Gs to each winner.
• Gambling inside a business entity does not escape the rules.

Back to the tax planning hub, or see reading your Form 1040.