OBBBA Gambling Loss Deduction 2026: The 90% Cap Explained

What Is the OBBBA 90% Gambling Loss Deduction Cap?

The OBBBA caps gambling loss deductions at 90% of your total losses, down from 100% under prior law. Starting in 2026, even if you break even gambling, you owe tax on 10% of your losses that you can no longer deduct. This creates taxable 'phantom income' that doesn't correspond to actual profit.

The One Big Beautiful Bill Act (OBBBA), formally H.R. 1 of the 119th Congress, was signed into law on July 4, 2025. Among its many provisions, Section 70114 amends Internal Revenue Code Section 165(d) to limit the deductibility of gambling losses.

Prior to 2026, if you won $100,000 and lost $100,000 gambling, you could deduct all $100,000 of losses against your winnings (if you itemized deductions), resulting in $0 taxable gambling income. Under the new rules, you can only deduct $90,000 of those losses (90%), leaving $10,000 in taxable income despite having zero actual profit.

This provision is estimated to raise approximately $1.1 billion in federal revenue over eight years, according to the Joint Committee on Taxation. The cap applies to all forms of gambling: sports betting, casino games, poker tournaments, lottery tickets, horse racing, and any other wagering activity.

How Does Phantom Income from Gambling Work?

Phantom income is the taxable amount created by the gap between your actual gambling losses and what you're allowed to deduct. If you win $50,000 and lose $50,000, you can only deduct $45,000 (90%), leaving $5,000 in phantom income that's taxable even though you broke even or lost money overall.

Phantom income is arguably the most confusing aspect of the new law. It refers to income that exists only on paper for tax purposes, not in your bank account. Here is how it works in practice.

Consider a recreational sports bettor who earns a $75,000 salary and has $30,000 in sports betting winnings and $35,000 in losses during 2026. Under the old rules, this bettor could deduct $30,000 of losses (limited to winnings), and owe tax only on their salary. Under the 2026 OBBBA, they can deduct only $27,000 (90% of $30,000, the lesser of 90% of losses or 90% of winnings). This leaves $3,000 in phantom taxable income from gambling, even though the bettor actually lost $5,000 overall.

The phantom income is taxed at your marginal federal tax rate. For someone in the 22% bracket, $3,000 of phantom income means approximately $660 in additional federal taxes on gambling activity that resulted in a net loss.

Who Is Affected by the OBBBA Gambling Loss Cap?

Every gambler who itemizes deductions is affected by the 90% cap, including recreational bettors, professional gamblers, and break-even players. The OBBBA also reclassifies professional gamblers' business expenses as Section 165(d) losses, subjecting them to the same 90% limit.

The law casts a wide net. You are affected if you meet all three of these conditions: you gamble, you have losses, and you itemize deductions on your federal tax return.

Recreational bettors who itemize are the most directly impacted group. If you use the standard deduction ($16,100 for single filers in 2026), gambling losses cannot be deducted regardless, so the 90% cap does not change your situation. But if you itemize, your deductible losses are now reduced.

Professional gamblers face a particularly harsh impact. The OBBBA reclassifies ordinary and necessary business expenses of professional gamblers as Section 165(d) losses. This means that business expenses like travel, software subscriptions, and data services are now subject to the same 90% cap. Previously, these expenses were fully deductible as business expenses on Schedule C.

Break-even gamblers who previously owed nothing now face real tax liability. If you win and lose the same amount, you have phantom income equal to 10% of your losses, which is taxable at your marginal rate.

How to Calculate Your 2026 Gambling Tax with the OBBBA Cap

To calculate your 2026 gambling tax: add winnings to your income, then deduct only 90% of your losses (capped at your winnings) if you itemize. The difference between your actual losses and deductible losses is your phantom income, taxed at your marginal federal rate plus your state rate.

Follow these steps to calculate your tax liability under the new rules.

Step 1: Add your gambling winnings to your other income to get total income. Step 2: If you itemize, calculate your deductible losses as the lesser of (a) 90% of your total gambling losses, or (b) your total gambling winnings. Step 3: Subtract your deductible losses from your gambling winnings. The result is your taxable gambling income, which includes any phantom income. Step 4: Apply your federal marginal tax rate to the taxable gambling income. Step 5: Add your state income tax on gambling winnings.

Or, use our free calculator that handles all of this automatically, including the 2025 vs 2026 comparison toggle so you can see exactly how much more you owe under the new rules.

Can I Avoid the 90% Cap? Strategies for 2026

You cannot avoid the 90% cap through legal means while continuing to gamble and itemize deductions. However, you can minimize its impact by keeping detailed records, evaluating whether itemizing still benefits you, and planning your gambling activity with the tax impact in mind.

There is no legal way to fully avoid the 90% cap if you gamble, have losses, and itemize. However, several strategies can minimize the impact.

First, evaluate whether itemizing still makes sense. If the 90% cap reduces the value of your gambling loss deduction enough that your itemized deductions fall below the standard deduction ($16,100 single, $32,200 married filing jointly for 2026), you may be better off taking the standard deduction.

Second, maintain meticulous records. The IRS requires documentation of every gambling session: date, location, type of gambling, amounts won and lost, and any W-2G forms received. Without proper records, you risk losing the deduction entirely.

Third, consider the timing of your gambling activity. If you have a particularly profitable year, your losses from other sessions become more valuable for deduction purposes, even at the 90% cap.

Finally, consult a qualified tax professional (CPA or enrolled agent) who specializes in gambling taxation. The interaction between the OBBBA cap, state tax rules, and your overall tax situation is complex enough to warrant professional guidance.

Will the 90% Cap Be Repealed? Current Legislative Status

Three bills aim to repeal the 90% cap: the FAIR BET Act (H.R. 4304), the FULL HOUSE Act House version (H.R. 6985), and the FULL HOUSE Act Senate version (S. 2230). All three have bipartisan support but remain stalled in committee as of March 2026.

There is significant bipartisan momentum to repeal the 90% cap, but no bill has advanced past committee as of March 2026.

The FAIR BET Act (H.R. 4304) was introduced by Rep. Dina Titus (D-NV) on July 7, 2025 with 23 bipartisan co-sponsors. The House Rules Committee blocked it from being attached to the 2026 NDAA. A discharge petition was filed in February 2026 but has only one signature.

The FULL HOUSE Act has both a House version (H.R. 6985, introduced January 8, 2026) and a Senate version (S. 2230, introduced July 2025). The House version is sponsored by Rep. Steven Horsford (D-NV) and Rep. Max Miller (R-OH), both on the Ways and Means Committee. The Senate version has bipartisan support from Sen. Ted Cruz (R-TX), Sen. Catherine Cortez Masto (D-NV), Sen. Bill Hagerty (R-TN), and Sen. Jacky Rosen (D-NV).

The American Gaming Association has made repeal a priority, projecting the cap will be reversed, potentially retroactively. However, until a bill passes, the 90% cap is the law for the 2026 tax year.

How the OBBBA Affects Sports Bettors Specifically

Sports bettors are particularly impacted because the volume of bets creates many small wins and losses throughout the year. A bettor who makes hundreds of bets may have $50,000 in gross winnings and $48,000 in losses, but under the OBBBA can only deduct $43,200 (90%), owing tax on $6,800 instead of $2,000.

Sports bettors face a unique challenge because of the high volume of transactions. Unlike a single lottery purchase or casino visit, active sports bettors may place hundreds or thousands of bets per year, accumulating significant gross winnings AND gross losses.

This volume amplifies the phantom income problem. Consider a DraftKings user who places 500 bets during 2026. Their account shows $50,000 in total winning payouts and $48,000 in total losses. Under old rules, they would deduct $48,000 against $50,000 in winnings, paying tax on $2,000 of actual profit. Under the OBBBA, they deduct only $43,200 (90% of $48,000), paying tax on $6,800 — more than triple the tax on what was only $2,000 of actual profit.

Additionally, the new $2,000 W-2G threshold for sports betting (up from $600) means fewer individual bets trigger reporting, but you are still responsible for reporting all winnings on your tax return regardless.

State Tax Implications of the OBBBA

State tax treatment of the OBBBA varies. Most states that allow gambling loss deductions follow the federal 90% cap automatically. However, four states do not allow gambling loss deductions at all: Indiana, Massachusetts, North Carolina, and Wisconsin.

The OBBBA is a federal law, but its impact extends to state taxes in complex ways.

Most states that allow itemized deductions follow federal deduction rules. If your state conforms to the federal IRC Section 165(d), the 90% cap applies at the state level as well. This means phantom income is taxed by both the federal government and your state.

Nine states have no income tax at all (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming), so the OBBBA only affects your federal taxes if you live in these states.

Four states that do have income tax do not allow gambling loss deductions at all, regardless of the OBBBA: Indiana, Massachusetts, North Carolina, and Wisconsin. If you live in one of these states, you already pay state tax on your full gambling winnings without any offset for losses.

Frequently Asked Questions