Tax Treatment of Gambling Losses Under the One Big Beautiful Bill

“Did your parlay hit?” asks your significant other across the table from you at Sunday brunch. The football game is down to the final seconds…and your bet just went sideways. You lower your head in shame. Another week, another parlay loss. We have all seen the jokes on social media about betting woes, but what was once harmless meme material could soon hit you where it really hurts: your taxes. What you thought you knew about the tax treatment of gambling losses will soon be replaced under the One Big Beautiful Bill Act.

The One Big Beautiful Bill Act (“OBBBA”), signed by President Trump on July 4, has some lesser-known provisions that could have a big impact on gamblers and sports bettors. Effective January 1, 2026, bettors will no longer be able to deduct all of their losses.

The Old Way

Until December 31, 2025, the rules are simple: you can deduct gambling losses up to the amount of your winnings. That means that if you win $10,000 but you lose $15,000, you can only deduct $10,000, leaving you with a net of $0 taxable gambling income.

The New Way

Starting on January 1, 2026, the OBBBA puts a twist on the current rules; you can still deduct your losses up to the amount of your gambling wins, but now you can only deduct 90 percent of those losses.

With football season in full swing, sports betting and fantasy leagues are everywhere. Whether you are a seasoned gambler or a casual bettor, this new rule could mean some unpleasant surprises come tax time. While the 10 percent haircut might sound minor, industry leaders are sounding the alarm because this twist could leave bettors paying taxes even in losing years.

What does this look like? Say a gambler earns $1.7 million in winnings and racks up $1 million in losses. Under the new rule, they can only deduct $900,000, meaning they are taxed on $800,000, which comprises $700,000 of actual profit plus $100,000 of phantom income. Or say a gambler earns $1 million in winnings but suffers $2 million in losses. They can only deduct $900,000, so they are taxed on $100,000 of phantom income even though they had a net loss of $1 million for the tax year.

Keep Those Receipts

If you plan to continue gambling, meticulous recordkeeping will be crucial. The new rules apply to casino games, sports betting, poker tournaments, lottery tickets, horse racing, and other forms of legal gambling. You should keep detailed records of the dates and types of gambling wagers, the amounts won and lost, receipts for related expenses, and casino statements or win/loss reports.

Alternatives

Although the high of a successful parlay is especially addictive, the tax hangover of paying an unexpectedly high amount in taxes every year might be the ice bucket that sobers many sports bettors.

Instead, gamblers could try their hand at prediction markets such as Kalshi or Polymarket. Where sports betting involves wagering against a bookmaker who sets the odds, prediction markets operate as exchanges where users trade with each other, and prices are determined by market demand. 

Prediction markets, which still offer parlay-style bets, are not regulated as gambling under state law and are open to users 18 and older, unlike traditional sports betting, which is regulated by state law and has an age requirement of 21+.

Looking Ahead

The IRS issues gamblers a Form W-2G when winnings exceed $600, but some states account for winnings differently. For example, California taxes gambling winnings, so state reporting rules could get even trickier under this new federal limitation.

Sports betting in the United States has ballooned by $10 billion from just 2019 to 2023, and in 2024 it was a $13.71 billion industry. With this new change, the Congressional Budget Office estimates that the federal government stands to collect more than $1 billion in extra tax revenue over the next decade.

So, it might be time to parlay those parlays into something new before Uncle Sam cashes in on your losses.

RJS LAW | Tax Treatment of Gambling Losses

RJS LAW and its experienced attorneys provide tax planning (domestic and international), audit representation, and other tax related services to individuals and businesses across a wide spectrum of industries. We provide representation before the IRS and other taxing agencies such as the CDTFA, Franchise Tax Board, and EDD. For a free consultation, please contact us at RJS LAW or by telephone at 619-595-1655.

Written by Remy Hogan, Esq., LL.M.