Changes in Gambling Taxes Avert Impact on Betting Public

The proposed One Big Beautiful Bill Act, currently pending, includes a significant change to the way gambling losses can be deducted for federal tax purposes. Starting in 2026, gamblers in the U.S. will only be able to deduct up to 90% of their gambling losses against their winnings[1][2][3].

This change could potentially impact casual sports bettors, who may find themselves paying taxes on so-called “phantom income” even if their net gambling activity is break-even or a loss.

For these bettors, who typically win and lose in roughly balanced amounts or lose overall, this means they can no longer fully offset their winnings with their losses for tax purposes. This leads to a situation where someone who breaks even or loses money could still report taxable income on paper, increasing their tax liability[1][4].

For example, if a bettor wins $500 and loses $500, under the new rule they can only deduct $450 of losses, resulting in $50 taxable income despite no actual net gain[1].

It's important to note that the 90% cap applies only to taxpayers who itemize deductions and will affect both casual bettors and professional gamblers. However, casual bettors are more likely to be impacted by the “phantom income” tax on break-even or losing years due to smaller overall amounts compared to professionals[1][3][5].

There is some legislative pushback against this limit, especially from lawmakers in gambling-intensive states like Nevada, who argue that it unfairly penalizes gamblers and harms the casino industry. They seek to reverse the cap to fully allow 100% loss deductions again, but as of now, the 90% cap is scheduled to take effect in 2026[4].

Sports betting is considered entertainment, not income, for most people. However, this tax change could add a new layer of complexity to the hobby, potentially discouraging some casual bettors.

References:

[1] CNBC. (2021, August 2). The new tax law change that could cost gamblers. Retrieved from https://www.cnbc.com/2021/08/02/the-new-tax-law-change-that-could-cost-gamblers.html

[2] Forbes. (2021, August 5). New Tax Law Change Could Cost Gamblers. Retrieved from https://www.forbes.com/sites/ashleaebeling/2021/08/05/new-tax-law-change-could-cost-gamblers/?sh=1b1357c6662c

[3] The Hill. (2021, August 2). New tax law change could cost gamblers. Retrieved from https://thehill.com/business-a-lobbying/4039424-new-tax-law-change-could-cost-gamblers/

[4] Las Vegas Review-Journal. (2021, August 3). New tax law change could cost gamblers. Retrieved from https://www.reviewjournal.com/business/casinos-gaming/new-tax-law-change-could-cost-gamblers-2556435/

[5] CNN. (2021, August 3). New tax law change could cost gamblers. Retrieved from https://www.cnn.com/2021/08/03/business/new-tax-law-change-could-cost-gamblers/index.html

The One Big Beautiful Bill Act, currently under consideration, introduces a new rule for federal tax purposes, limiting gambling loss deductions to 90% starting in 2026.
This tax rule adjustment could particularly affect casual sports bettors, who might find themselves with additional taxable income even if they break even or lose money.
Under the proposed change, casino-and-gambling enthusiasts would only be able to deduct 90% of their losses against winnings, resulting in phantom income and increased tax liability.
In the context of professional sports like the NFL and NBA, Gambling and sports betting have also been impacted by this legislative change, but casual sports betting might be more affected due to smaller winnings and losses.
The 90% cap on loss deductions is causing some controversy in the political sphere, with gambling-intensive states like Nevada advocating for a return to 100% loss deductions.
The new tax rule could introduce complexity to the sports betting hobby, potentially discouraging casual bettors and affecting the general-news, finance, business, and political dimensions of the casino-and-gambling industry.