Breaking even on gambling may no longer mean breaking even at tax time.
Beginning with the 2026 tax year, the federal tax rules for deducting gambling losses have changed. The change could create an unexpected tax bill for some taxpayers.
What was the old rule?
Before 2026, taxpayers who itemized their deductions could generally deduct 100% of their documented gambling losses, up to the amount of their reported gambling winnings.
For example, if you had $10,000 in gambling winnings and $10,000 in gambling losses, the losses could completely offset the winnings for federal tax purposes.
What is the new rule?
Starting in 2026, the deductible amount is limited to the lesser of:
- 90% of your gambling losses, or
• Your total gambling winnings
This means your losses may no longer completely offset your winnings even when you broke even financially.
Here is a simple example:
You have:
🎲 $10,000 in gambling winnings
🎲 $10,000 in gambling losses
Under the previous rule, you could potentially deduct the full $10,000 of losses.
Under the new rule, only 90% of the losses or $9,000 may be deductible. That leaves $1,000 of taxable gambling income, even though you did not actually make a profit.
In some situations, taxpayers could even have a small overall gambling loss and still report taxable gambling income.
What else should you know?
All gambling winnings must be reported, including winnings from casinos, sports betting, lotteries, raffles and online gambling even when you do not receive a Form W-2G.
For most recreational gamblers, losses are deductible only when you itemize deductions on Schedule A. If you claim the standard deduction, your gambling losses generally will not reduce your taxable income.
You should also maintain detailed records, including:
• Casino or sportsbook statements
• Betting tickets and receipts
• Forms W-2G
• A gambling diary showing dates, locations, winnings and losses
The IRS requires taxpayers to maintain records supporting both their winnings and losses.
Gambling losses cannot be used to offset wages, retirement income or other non-gambling income. Professional gamblers may also have additional reporting considerations.
Significant gambling activity can now create a tax obligation even when your actual profit is minimal or nonexistent. Contact our team at PPL to discuss how the new rules may affect your 2026 tax planning.