The 2026 Gambling Tax Trap: Taxed Even When You Break Even

Danny bet on sports all through 2026, and by New Year's Eve he'd come out almost exactly even. His winning bets added up to about $120,000 across the year. His losing bets came to roughly the same. Net profit for twelve months of action: basically zero. Then in April 2027, his tax preparer told him he owed the IRS around $2,880 on the gambling anyway.

That bill didn't come from a mistake. It came from a single rewritten line in the 2026 tax law. Starting with the 2026 tax year, gamblers can deduct only 90% of their losses instead of the full 100% they've always been allowed. When your wins and losses are close, that missing 10% turns into income you're taxed on even though it never stayed in your wallet. Accountants have a name for money like that: phantom income.

Here's how the rule works, who actually gets burned by it, and what to do before you file.

The old math, and why nobody thought about it

Gambling winnings have always been fully taxable. Every dollar you win at a casino, a poker table, or on a betting app is income the IRS expects to see on your return, win or lose overall.

To keep that fair, the tax code let you deduct your losses to cancel out your winnings, with two catches: you could only deduct up to the amount you won, and you had to itemize on Schedule A to claim any of it. So a bettor who won $50,000 and lost $50,000 in a year reported $50,000 of winnings and deducted $50,000 of losses. Taxable gambling income: zero. Break even in real life, break even on your taxes. That was the deal for decades under Section 165(d) of the tax code, and most people never had to think about it.

What changed for 2026

The One Big Beautiful Bill Act rewrote that arrangement. Section 70114 of the law amended Section 165(d) so that, for tax years beginning after December 31, 2025, you can deduct only 90% of your wagering losses, still capped at your winnings. Foster Garvey's tax analysis of the bill and reporting from firms like BRC CPAs both lay out the same mechanics: the 10% you can no longer deduct becomes taxable, even on a break-even year.

Run Danny's numbers. He reports $120,000 in winnings. He's allowed to deduct 90% of his $120,000 in losses, which is $108,000. The $12,000 gap is now taxable income. In the 24% federal bracket, that's roughly $2,880 in tax for a year where he didn't come out ahead by a dollar. Under the old rules, he'd have owed nothing.

Here's the part that stings: the cap scales with how much money you run through your bets, not how much you keep. A weekend bettor with $2,000 in winning tickets and $2,000 in losing ones is looking at $200 of phantom income, which is annoying but survivable. A high-volume sports bettor or poker player who churns $1 million through winning sessions and $1 million through losing ones, and walks away flat, gets taxed on $100,000 he never actually earned. At the top 37% bracket, that's a $37,000 tax bill for breaking even.

Who this actually hits, and who barely notices

Now for the twist most of the coverage skips. This change doesn't touch most casual bettors at all, and not for a comforting reason.

Gambling losses live on Schedule A, the itemized-deductions form. Only about 14% of Americans are expected to itemize in 2026, according to analyses of the law. Everyone else takes the standard deduction, set at $16,100 for single filers and $32,200 for married couples this year, and never deducts a single dollar of gambling losses, at 100% or 90%. If that's you, the new cap changes nothing about your losses, because you weren't deducting them in the first place.

But you still owe tax on every dollar you win. That's the part people don't expect. You can finish the year down $500 on your betting app and still owe income tax on your winning bets, because winnings get reported in full while losses only help if you itemize. The 90% cap didn't invent that trap. It just made it worse for the people who do itemize.

So who really feels this? The high-volume and professional players. Poker pros, advantage gamblers, full-time sports bettors, anyone whose annual losses are big enough to clear the standard deduction and land them on Schedule A. For them the 10% haircut is real money, and it grows with every bet they place.

This isn't a fringe concern. Americans legally wagered $166.94 billion on sports in 2025, up 11% from the year before, and roughly one in five U.S. adults placed a sports bet, according to the American Gaming Association. A serious slice of that money moves through bettors who churn enough to itemize, and 2026 is the first year they'll feel the change on a return.

The rule that trips up almost everyone

There's a piece of this that catches even experienced bettors off guard: you can't just report your net.

The IRS doesn't let you write "I was up $300 this year" and move on. You report the total of your winning sessions as income, then deduct your losing sessions separately as an itemized deduction. Win $8,000 on your good days and lose $7,700 on your bad ones, and you report $8,000 of income, then try to deduct the $7,700 (now only $6,930 of it, at 90 cents on the dollar). That's the mechanical reason a break-even gambler can end up owing, and it's why sloppy record-keeping gets expensive fast.

Which brings up the single most valuable thing you can do: keep a contemporaneous log. Date, place or platform, type of game, money in, money out, session by session. The IRS regularly challenges loss deductions, and without records you can lose them entirely. A shoebox of crumpled losing tickets is not a log, and it won't hold up.

Professional gamblers get a partial escape hatch

If gambling is genuinely your trade or business, you file a Schedule C as a self-employed person instead of using Schedule A. That lets you deduct ordinary business expenses like travel, tournament entry fees, and data subscriptions under Section 162, which is a real advantage a recreational player doesn't get.

It doesn't save you from the main event, though. Your wagering losses themselves are still capped at 90% under the new rule, the same as everyone else. And the bar to qualify as a professional is high. The IRS wants to see that you gamble full-time, in a businesslike way, with the actual goal of earning a living. Plenty of people who think they clear that bar don't, so this is worth a conversation with a tax pro rather than a self-diagnosis.

Will Congress undo it?

Maybe, but I wouldn't build a plan around it. Representative Dina Titus of Nevada, whose district includes Las Vegas, introduced the FAIR BET Act to restore the full 100% deduction. The idea has bipartisan sympathy, and even the Republican chairman of the House Ways and Means Committee has said lawmakers are looking at a fix. But in January 2026 the House Rules Committee declined to advance the bill as an amendment to a defense spending package, and it's now sitting in committee with no guaranteed path forward.

The cap is live for the 2026 tax year right now. Smart move is to plan around the law that exists, not the one you're hoping passes.

Bottom line

The 90% cap quietly turns a break-even gambling year into a taxable one for anyone who bets enough to itemize. Four things worth doing this week:

1. Start a gambling log today, even a simple spreadsheet. Record every session with the date, the platform or venue, the game, and the exact amount you put in and took out. Backdating one in April is a lot harder than keeping it as you go.
2. Track your winning sessions and losing sessions separately, not just your running net. That separation is exactly how your tax is calculated, and it's the number your return will ask for.
3. If you run real volume, estimate your phantom income before December. Roughly 10% of your total losses gets added back to your taxable income, so multiply and see the damage early. If it's large, look into quarterly estimated payments so April isn't a shock, and check whether itemizing even beats your standard deduction this year.
4. Follow the FAIR BET Act if you want, but file as though the 90% cap is here to stay, because for now it is.