Are Gambling Losses Deductible? The New 90% Rule, “Phantom Income,” and How to Actually Claim Them

Quick answer: Yes, gambling losses are deductible — but only if you itemize, only up to the amount of your winnings, and now only up to 90% of those losses for the 2026 tax year and beyond. That last change is new, and it means you can lose money gambling and still owe tax on it. Most people who take the standard deduction can’t deduct gambling losses at all.

Here’s exactly how it works, with numbers.

Are gambling losses tax deductible?

Under Internal Revenue Code Section 165(d), gambling losses have always been deductible with strict limits:

• You can deduct losses only up to the amount you won. Losses that exceed winnings are gone — no carryforward to future years.
• You must itemize on Schedule A. If you take the standard deduction, you get nothing.
• You cannot subtract losses from winnings and report only the net. Winnings and losses go on separate lines.

So the deduction exists, but it’s narrow. And a recent law made it narrower.

What changed under the new 90% rule?

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. Buried inside was a rewrite of Section 165(d). Starting with the 2026 tax year (the returns you file in 2027), you can deduct only 90% of your gambling losses, still capped at your winnings.

The remaining 10% is now taxable — even if you broke even or lost money overall. Tax pros call this “phantom income”: tax on money you never actually kept.

Here’s the before-and-after at a glance.

Worked example: the break-even gambler

Say you win $10,000 and lose $10,000 in the same year. You ended with nothing.

• Old rule: deduct the full $10,000. Taxable gambling income = $0.
• New rule: deduct only 90% → $9,000. Taxable gambling income = $1,000, even though you broke even.

Worked example: the losing gambler

You win $50,000 but lose $53,000. You’re down $3,000 in real life.

• Your deduction is capped at your winnings, then cut to 90%: $50,000 × 90% = $45,000 deductible.
• You report $50,000 in winnings, deduct $45,000, and owe tax on $5,000 — despite losing money on the year.

This is why the change hit high-volume and professional gamblers hardest. The more you wager, the bigger the phantom income.

Do you have to itemize to deduct gambling losses?

Yes — and this is the trap that surprises most people.

Gambling losses go on Schedule A, line 16 (“Other Itemized Deductions”). They only help you if your total itemized deductions beat the standard deduction.

For the 2026 tax year, the standard deduction is roughly $16,100 for single filers and $32,200 for married filing jointly. Most Americans don’t clear that with itemized deductions, so most gamblers can’t use their losses in practice.

The asymmetry is brutal:

• Your winnings are taxable no matter what — itemizer or not.
• Your losses are deductible only if you itemize.

A rarely-cited stat drives this home: according to IRS data, only about 662,000 filers — roughly 0.4% of all returns — claimed gambling losses as an itemized deduction in a recent year. The deduction is far more limited in real life than headlines suggest.

How do you claim gambling losses step by step?

If itemizing makes sense for you, here’s the process:

1. Report all winnings first. Put total winnings on Schedule 1, line 8b, and carry them to your Form 1040 — even winnings with no tax form.
2. Add up your losses from your records (more on records below).
3. Apply the limits. Take the lesser of your winnings or 90% of your losses.
4. Enter the deductible amount on Schedule A, line 16.
5. Confirm itemizing wins. Only file Schedule A if your total itemized deductions exceed your standard deduction.

One nuance worth knowing: the IRS measures gambling by session, not by individual bet. A “session” is a continuous period of play. Tracking by session, rather than tallying every single wager or every W-2G separately, often gives a more accurate — and defensible — result.

What records does the IRS require?

The IRS frequently challenges gambling loss deductions, so documentation is everything. Keep a contemporaneous log that records:

• Dates and type of gambling.
• Name and address of the establishment or platform.
• Amounts won and lost per session.
• Names of anyone with you (for live play).

Back it up with supporting evidence: W-2G forms, wagering tickets, bank and card statements, e-wallet histories, and casino win/loss statements. Note that a casino win/loss statement alone is often not enough on its own — pair it with your own diary.

Also remember: sportsbooks and casinos report your winnings to the IRS, but they do not report your net losses. Proving losses is entirely on you.

How are professional gamblers taxed differently?

If gambling is genuinely your trade or business — pursued regularly, with profit intent — you may qualify as a professional gambler. Then:

• You report on Schedule C, not Schedule A, so you don’t need to itemize.
• You can deduct ordinary business expenses (travel to tournaments, entry fees, research tools) that casual gamblers cannot.

But there’s a catch: the new 90% cap applies to professionals too. Wagering losses plus related expenses are grouped and capped at 90% of winnings. Pros feel the phantom income squeeze just like everyone else, and they typically wager the most.

Could the 90% rule be repealed?

Maybe. The backlash was immediate and bipartisan.

• Lawmakers introduced the Fair Bet Act (H.R. 4304), led by Rep. Dina Titus of Nevada, to strip out the 90% limit and restore the full 100% deduction.
• Even the chairman of the House Ways and Means Committee reportedly called the provision a “mistake.”
• The change is projected to raise roughly $1.1 billion in tax revenue over about a decade, according to the Joint Committee on Taxation — which is part of why repeal isn’t guaranteed.

Across poker forums, sports-betting subreddits, and tax-pro commentary, the reaction has ranged from confusion to outrage, with many warning it will push serious gamblers toward unregulated, offshore platforms where nothing gets reported. Critics argue that taxing “phantom” income is bad policy that could backfire on tax compliance.

Status: as of now, the 90% rule is current law for the 2026 tax year. Watch for legislative changes before you file.

Do states let you deduct gambling losses?

Not always — and this is where it can get worse than the federal picture.

Many states tax your gambling winnings in full while disallowing any loss deduction. In those states, you can lose money for the year and still owe state tax on your gross winnings. A few states mirror the federal rules; others don’t allow the deduction at all.

Always check your specific state’s treatment. The state bill is easy to overlook and can dwarf the federal hit for frequent players.

Frequently asked questions

Can I deduct gambling losses if I take the standard deduction?

No. Casual gamblers can only deduct losses as an itemized deduction on Schedule A. Standard-deduction filers deduct nothing, yet still owe tax on all winnings.

Can I deduct more in losses than I won?

No. Your deduction is capped at your total winnings, then further limited to 90% of losses starting in 2026. Excess losses don’t carry forward.

Do I still owe tax if I lost money overall?

Possibly, yes. Under the 90% rule, breaking even or losing can still leave you with taxable “phantom income.”

What if I never got a W-2G?

You still must report the winnings. All gambling income is taxable whether or not a form was issued.

Does the 90% cap apply to casual and professional gamblers?

Both. Casual gamblers use Schedule A; professionals use Schedule C. The 90% limit hits both.