Gambling Losses Big Beautiful Bill

Buried withing the 8oo+ pages of the Big Beautiful Bill are provisions that affect how taxpayers can report gambling or wagering losses.  In our previous blog, we discussed how the Internal Revenue Code is not kind to gamblers, especially gamblers who do not itemize.  Under the “Big Beautiful Bill,” the tax code just made gambling less favorable.

As a disclaimer, the “Big Beautiful Bill” is an extensive and controversial piece of legislation.  It is the intent of this blog to focus on the provisions relating to gambling and not focus on the many controversies that surround other provisions of the legislation.  We also are not here to judge those who may enjoy gambling or other related activities (self-confession: I sometimes buy lottery tickets when the jackpots are large) and do encourage anybody who may think they have a problem to seek professional help.

Under the new legislation, wagering losses are limited to gambling winnings and 90% of wagering losses.  This can lead to even harsher tax treatment for frequent gamers.

To give an example under the old rules, let us say gambler makes places 10,000 bets during a year with each bet being $10 totaling ($100,000).  (This would be the equivalent of playing 100 hands of cards per session or having 100 slot pulls, for 2 sessions a week for 50 weeks out of the year.).  If the house has a 2% edge, this will mean the house won about 5,050 of the bets ($50,500 losses to the gambler) and the gambler would have won about 4,950 of the bets resulting in $49,500 of gambling winnings.

Under the old rules, the gambler would have to report $49,500 of gambling winnings on his or her return.  However, the gambler would be able to claim a gambling loss equal to the gambling winnings.  This effectively leads to a “wash” and there is no taxable income.  As we discussed previously, this treatment is not favorable if the Taxpayer does not itemize deductions on their tax return.

Under the new rules, the gambler still has to report $49,500 of gambling winnings. As far as the gambling losses, the taxpayer is not only limited by the amount of gambling winnings ($49,500) but also 90% of the gambling losses which is $45,450 (90% of $50,500).  Even though this taxpayer lost more than he or she won, she would have to report tax on $4,050 of income. 

In this example, the Taxpayer had $4,050 by making a $100,000 worth of bets during a year.  It is not unheard of for people who make frequent trips to casinos to make close to a $1,000,000 worth of bets or more in a year.  These people could be forced to report $40,000 (or more) of income on their tax return that they did not really earn. 

What if the house edge is 5%?  Under the example above, the house will win 5,122 of the bets ($51,220 of losses) and the gambler will win 4,878 of the bets ($48,780 gambling gains).  The gambler will have to report $48,780 of gambling income but will be limited to a $46,098 gambling loss (90% of $51,220).  This would lead to $2,682 of taxable income. 

Visiting a casino can be fun, but at the same time frequent casino visits are not advisable from a tax planning perspective.  The “Big Beautiful Bill” further punishes gamblers by taxing them on gains not realized. 

At RJS LAW, we help our clients with a wide array of tax and estate planning problems, including tax planning, audits, international tax issues, and protecting wealth via estates and trusts. Please feel free to contact us for a no-cost consultation at 619595-1655 or via the web at RJS LAW.