What the OBBBA change means for recreational and professional gamblers
Gambling and sports betting have become a routine part of many taxpayers’ financial lives, and the tax rules that come with them may not become apparent until a return is prepared. Gamblers may assume that a year of winning and losing similar amounts carries no tax consequence. Beginning with the 2026 tax year, that assumption no longer holds: a change enacted as part of the One Big Beautiful Bill Act (OBBBA) can leave a gambler with taxable income despite no economic gain, a result often described as phantom income.
The general framework for reporting gambling activity is unchanged. All gambling winnings are taxable, regardless of amount and regardless of whether a Form W-2G is issued. Losses remain deductible only for taxpayers who itemize deductions on Schedule A and only to the extent of gambling winnings; excess losses may not be carried forward. Taxpayers who claim the standard deduction receive no benefit from gambling losses at all.
For tax years beginning after December 31, 2025, the OBBBA further limits the deduction for gambling losses to 90% of the losses incurred. As a result, deductible gambling losses are limited to the lesser of 90% of total gambling losses or total gambling winnings.
The limitation extends to recreational gamblers, sports bettors, casino players, poker players and professional gamblers. For professional gamblers, both wagering losses and ordinary gambling-related business expenses are combined for purposes of the 90% limitation. Hence, costs such as travel, lodging and tournament entry fees are subject to the same cap.
Consider a taxpayer with $50,000 of gambling winnings and $50,000 of gambling losses for the year. Under prior law, the deduction fully offset the winnings and no taxable income resulted. Beginning in 2026, only $45,000 of those losses are deductible, producing $5,000 of taxable income despite no economic gain.
| Scenario | Winnings | Deductible Losses | Taxable Income |
| Prior Law | $50,000 | $50,000 | $0 |
| 2026 Rules | $50,000 | $45,000 | $5,000 |
Because the limitation is measured using gross winnings and losses rather than a taxpayer’s net economic result, the impact generally increases with the volume of gambling activity. The greater the amount wagered and recouped during the year, the greater the potential amount of phantom income that may be reported.
The consequences may extend beyond the tax imposed on that phantom income. For recreational gamblers, gambling winnings are generally included in adjusted gross income (AGI), while deductible losses are claimed separately as an itemized deduction. As a result, significant gambling winnings can affect AGI-based tax provisions even when losses largely offset those winnings economically. The new 90% limitation further compounds this issue by permanently disallowing a portion of otherwise deductible losses.
High-income taxpayers face an additional limitation. As of 2026, taxpayers in the 37% bracket receive a tax benefit of only about 35 cents for each dollar of itemized deductions and gambling losses aren’t exempt. Using the same facts, a top-bracket taxpayer would pay about $18,500 of tax on $50,000 of winnings but save only about $15,750 from the $45,000 of deductible losses. That leaves roughly $2,750 of tax on a year in which the taxpayer broke even.
It is also important to remember that the example above assumes the taxpayer itemizes deductions. Taxpayers who claim the standard deduction receive no tax benefit from gambling losses. In that case, a standard deduction filer would report the full $50,000 of winnings as taxable income, rather than the $5,000 of phantom income created by the new limitation. Because most individual taxpayers now claim the standard deduction, this outcome is often more significant than the impact of the 90% limitation itself.
State treatment adds a further layer. Not every state permits a deduction for gambling losses and states that do will decide separately whether to conform to the federal 90% limitation. A taxpayer in a non-conforming state can face a state liability measured against gross winnings, so state exposure should be projected alongside the federal calculation.
The FAIR BET Act has been introduced to repeal the 90% limitation and restore the full deduction. The proposal has attracted bipartisan support. No legislation has been enacted and the discussion above reflects current law.
Taxpayers with significant gambling activity should consider the following steps to address the impact of the new limitation and strengthen their tax planning.
The practical impact of this provision will vary significantly depending on a taxpayer’s level of gambling activity, filing position and overall tax profile. Accordingly, taxpayers may benefit from a review of their current tax situation to better understand the potential implications of the limitation and identify opportunities to mitigate unexpected tax consequences.
Withum’s Tax Services Team can assist taxpayers in evaluating these considerations and developing strategies tailored to their individual circumstances.
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What the OBBBA change means for recreational and professional gamblers Gambling and sports betting have become a routine part of many taxpayers’ financial lives, and the tax rules that come with them may not become apparent until a return is prepared. Gamblers may assume that a year of winning and losing similar amounts carries no…
