I have a few tax clients that enjoy visiting the casinos around the country and one of the issues I will discussing next spring will be is the new gambling provision that could reshape how millions of U.S. gamblers are taxed on their bets. That is because the so-called "One Big Beautiful Bill" (OBBB), signed into law on July 4, 2025, introduced a cap on deductions for gambling losses.
Starting January 1, 2026, people will be able to deduct only 90% of their gambling losses against their winnings on federal taxes. (The previous policy allowed a full 100% deduction of gambling losses up to the amount of winnings.). This is projected to will raise roughly $1.1 billion in additional taxes over ten years.
Needless to say, some legislators from states that depend on gambling income are not too happy with this and already talking about getting it repealed. That’s understandable. I have found that most people who spend a lot at the casinos generally spend more than they win, but at least they could deduct their losses as an itemized deduction to cancel out paying taxes on the winnings. That will now change if the law stands.
So, for example, if someone gambling wins $100,000 and loses $100,000 in a year, they could deduct the full $100,000 in losses on their Schedule A. Under the new law, beginning in 2026, only $90,000 of that amount would be deductible. A key complaint is that if a taxpayer won and lost $100,000 in a year, for example, the new rule would mean that the bettor would be taxed on $10,000 of what some consider to be “phantom income,” since they effectively broke even.
Phantom income refers to money that is taxable to an individual or entity in the eyes of the IRS, even though that person or entity hasn’t actually received the cash. This means that the new limit could result in gamblers paying taxes on income they didn’t receive. So you end up owing taxes on income that only exists "on paper," not in your bank account.
The FAIR BET Act is Introduced
In response to the outcry, Rep. Dina Titus (D-Nev.), along with Rep. Ro Khanna (D-Calif.), introduced the Fair Accounting for Income Realized from Betting Earnings Taxation (FAIR BET) Act just days after the OBBB was signed.
This bill proposes to restore the previous standard, allowing taxpayers to deduct 100% of their gambling losses. Supporters of the FAIR BET Act argue that the new cap unfairly penalizes recreational and professional gamblers.
In an official release, Titus stated that the FAIR BET Act would “bring fairness back to gaming taxation, making sure that gamblers can fully deduct losses when they report their winnings.”
Over on the Senate side, Democratic Sen. Catherine Cortez Masto of Nevada introduced a bill called the Full House Act (“Facilitating Unbiased Loss Limitations to Help Our Unique Service Economy”) to restore the ability of gamblers to deduct 100% of their losses.
Then, on July 10, 2025, Senate Republicans blocked the repeal attempt when Sen. Todd Young (R-Ind.) objected to the unanimous consent request. So for now, the repeal effort is stalled.
In response, Cortez Masto said in a release: “This is a Republican piece of legislation that is actually causing people to pay taxes on money they lost. It makes no sense.”
As far as the industry response goes, the American Gaming Association (AGA) initially supported Trump’s tax megabill, but has reportedly flipped support to restoring the full gambling loss deduction.
In either case, all gambling winnings must be included on your tax return, regardless of the amount or whether you receive official documentation from the casino or organizer. Losses from gambling may then be deducted, but only if you itemize your deductions on Schedule A of Form 1040. (That is if you lose enough to be able to itemized instead of using the standard deduction.)
To claim the deductions, be sure to keep thorough and specific records of all wagers, including receipts, statements, tickets, or a personal log that documents each session's details: date, place, type of gambling, and amounts won or lost.
The Bottom Line
The debate over the gambling loss deduction cap brings up the broader questions about how the tax code should treat gambling activity.
For instance, gamblers could owe federal income tax even if their actual winnings and losses cancel each other out or the larger the volume of gambling activity, the greater the impact of the non-deductible 10% on taxable so-called “phantom income."
Proponents of the FAIR BET Act argue that taxing only net winnings is a matter of fairness. At the same time, critics of the previous system view the cap as a means to increase tax revenue and discourage excessive gambling. The outcome of this legislative battle will have implications for millions of U.S. bettors. It will be interesting to see which side wins up on Capital Hill.