Whether you’re a weekend slot player, a sports bettor, or a professional poker pro, one thing is certain: the IRS wants its cut of your winnings. Gambling income has always been taxable, but a recent law—the One Big Beautiful Bill, signed on July 4, 2025—introduced a major shift that affects both casual and professional gamblers.
💵 How Gambling Income Is Normally Taxed
- All winnings are taxable: Casino jackpots, lottery prizes, sports bets, horse racing, and even raffle prizes must be reported as income.
- Form W-2G: Casinos and other payers issue this form for certain winnings (e.g., $1,200+ on slots, $5,000+ on poker tournaments).
- Loss deductions: Historically, you could deduct 100% of your gambling losses—but only up to the amount of your winnings.
- Example: If you won $50,000 but lost $50,000, you broke even and owed no tax.
📜 What the One Big Beautiful Bill Changed
Hidden in the sweeping 2025 tax law was a provision that limits gambling loss deductions to 90% of winnings starting in 2026 Taxes For Expats.
- Old Rule (through 2025): Losses deductible up to 100% of winnings.
- New Rule (2026 onward): Losses deductible only up to 90% of winnings.
This means even if you break even, you could still owe taxes on “phantom income.”
⚖️ Example: The Phantom Income Problem
- Winnings: $500,000
- Losses: $500,000
Old Rule: Deduct all $500,000 in losses → $0 taxable income.
New Rule: Deduct only $450,000 in losses → $50,000 taxable income.
So even though you didn’t actually profit, the IRS treats you as if you did.
For high-volume gamblers, the effect is even harsher. A professional poker player who wins $5.2 million and loses $5 million (a real net gain of $200,000) would be taxed as if they made $700,000 under the new rules Taxes For Expats.
🎯 Who’s Most Affected?
- Professional gamblers: Poker players, sports bettors, and others who operate on thin margins.
- Frequent recreational gamblers: Even casual players who break even could face unexpected tax bills.
- U.S. expats and non-residents: Still required to report worldwide income, they may now face “phantom income” liabilities.
✅ Key Takeaways
- Gambling winnings are always taxable.
- Before 2026, losses could fully offset winnings.
- Starting in 2026, only 90% of losses can be deducted.
- This change creates taxable income even in break-even years.
- Professional gamblers are hit hardest, but casual players aren’t immune.
🚀 Final Word
The One Big Beautiful Bill reshaped gambling taxation in a way that many see as unfair—taxing income that doesn’t really exist. If you gamble regularly, it’s more important than ever to keep meticulous records of your play and consult a tax attorney or CPA who understands the new rules.
Disclaimer:
This post does not constitute legal advice and does not create an attorney-client relationship, it is merely a general discussion of points of the law and may not be complete or up to date. Please contact our office for a consultation to discuss how tax laws may be relevant to your specific situation.