Strategies for Managing Taxes on Gambling Income and Losses: Key Points to Keep in Mind
In the United States, gambling winnings are subject to federal income tax, and taxpayers may deduct gambling losses only up to the amount of gambling winnings. However, starting January 1, 2026, a new federal rule will limit the deduction of gambling losses to 90% of winnings, meaning gamblers could owe tax on phantom income even if they break even or lose overall.
Prior to 2026, gamblers could deduct 100% of their losses up to their winnings, effectively eliminating tax on net-zero or losing gambling activity. From 2026 onward, only 90% of gambling losses may be deducted against winnings, resulting in taxable income on the remaining 10% of losses. For example, winning $500,000 and losing $500,000 would now make $50,000 taxable.
The United States gaming industry is currently booming, with data from the American Gaming Association indicating that about 55% of all American adults gambled in the last year. This includes new casinos, lotteries, and the growing trend of online sports betting.
Regarding state-level taxes and online sports betting, taxation varies by state because gambling regulations and tax laws are largely state-decided. The search results do not provide a specific list of states that impose taxes on online sports bets, but generally, states that have legalized online sports betting impose some form of tax or fee on operators and may require bettors to report and pay taxes on winnings at the state level. States with legal online sports betting usually follow federal guidelines for reporting winnings, but with possible additional state income tax obligations.
Because the 2025-2026 federal tax changes apply broadly to all gambling winnings and losses reported on federal tax returns, they implicitly affect online sports betting winnings as well. For precise information on which states tax online sports betting winnings or impose special taxes, you would need to consult each state's gambling tax rules, as the current search results do not detail specific states' tax policies on online sports bets.
In summary, gambling winnings are taxed at the federal level, with a 100% deduction of losses allowed up to winnings until 2025, and a 90% deduction limit starting 2026. At the state level, taxation varies, with some states taxing winnings from online sports betting. These changes will broadly impact all gamblers, including online sports bettors, by reducing deductible losses to 90% of winnings, potentially increasing taxable income on paper.
References: [1] IRS Publication 525: Taxable and Nontaxable Income. (2021). Retrieved from https://www.irs.gov/publications/p525 [2] IRS Publication 505: Tax Withholding and Estimated Tax. (2021). Retrieved from https://www.irs.gov/publications/p505 [3] IRS Publication 529: Miscellaneous Income. (2021). Retrieved from https://www.irs.gov/publications/p529 [4] IRS Publication 530: Tax Information for Farmers and Fishermen. (2021). Retrieved from https://www.irs.gov/publications/p530 [5] IRS Publication 17: Your Federal Income Tax. (2021). Retrieved from https://www.irs.gov/publications/p17
In the booming gaming industry of the United States, changes in federal tax rules will affect not only traditional casinos and gambling, but also online sports betting. From 2026, gamblers, including online sports bettors, can deduct only 90% of their losses against winnings, potentially increasing taxable income on paper.
Starting January 1, 2026, the United States federal rule will limit the deduction of gambling losses for all types of gambling, including online sports betting, to 90% of winnings, even if the gambler breaks even or loses overall.
