What the IRS Gambling Loss Deduction Rules Mean for Bettors

Taxpayers who itemize federal returns will likely be able to deduct 100% of their gambling losses against winnings for the 2026 tax year.

On Wednesday (Sept. 16), the House Ways and Means Committee passed the Digital Asset Tax Certainty Act with a 38-5 vote.

While House Resolution 10357 modernizes the federal tax code for the digital asset economy, tucked away in the 98-page bill is a provision that restores the deduction for gambling losses to 100%.

The gambling write-off was trimmed to 90% through the Republicans’ and President Donald Trump’s One Big Beautiful Bill Act (OBBBA).  

Las Vegas and the legal gaming industry have since been lobbying Congress to restore the full deduction, arguing that the reduction forces a gambler who wins $100,000 but also loses $100,000 to pay federal income taxes on $10,000 in phantom income.

IRS Data Shines Light on Gambling Losses

Nevada’s congressional delegation, as well as delegations from other major gaming states, such as Pennsylvania, have told lawmakers on Capitol Hill that the 90% deduction cap would have devastating consequences on the legal gaming market and push some to offshore gambling.

The gaming industry and lawmakers closely tied to it argued that by not allowing 100% of losses to be deducted against winnings, casinos across the country would suffer, leading to closures, job cuts, and reduced tax revenue.

They contended that the benefit to the federal government, an estimated $1.1 billion over eight years, was greatly outweighed by the risk to the gaming economy.

What do the numbers from the Internal Revenue Service (IRS) say?

According to IRS data for the 2023 tax year, the most recently disclosed statistical year, only 15.1 million taxpayers filed itemized returns. After the 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, the number of itemized returns fell sharply, from roughly 30% of filers to about 10%.

In 2023, the IRS said 592,864 itemized filers took advantage of the gambling loss deduction, or less than 4% of the itemized filings.

The federal tax agency handled 153 million individual income tax returns that year, meaning the gambling deduction impacted less than 0.4% of the taxpaying population.

However, those who did use the gambling deduction deducted substantial losses.

Gross gambling winnings for 2023 topped $50.1 billion, with $42.7 billion in losses deducted. Under a 90% cap, those deductions would have been reduced to approximately $38.4 billion.

The IRS requires that gamblers itemizing deductions keep an accurate record of winnings and losses and “be able to prove those amounts with receipts, tickets, statements, or similar items” should the return be audited.

Ultimately, while the IRS data shows the deduction impacts a small slice of total filers, the outcome of H.R. 10357 carries outsized consequences for high-volume bettors and the broader health of the regulated gaming economy.