The 90% gambling loss rule, explained.

What changed

The One Big Beautiful Bill Act, signed July 4, 2025, amended section 165(d) of the Internal Revenue Code. For tax years beginning after December 31, 2025, the deduction for losses from wagering transactions is limited to 90% of those losses, and that reduced figure is still capped at your wagering winnings for the year.

Two things did not change. Losses were always capped at winnings, so a net loser never got a deduction for the excess. And since 2018, a professional gambler's business expenses (travel, entry fees, data, software) have been treated as wagering losses and folded into the same cap. The 2026 rule applies the 90% haircut to that combined figure.

One change in the same law cuts the other way: the W-2G reporting threshold for slot and bingo wins rises from $1,200 to $2,000 beginning in 2026. Fewer forms, not less income. Winnings below the threshold were always taxable and still are.

The math, three ways

The rule is easiest to understand by running it. Same $100,000 of winnings in each row.

Your year	Winnings	Losses	Deductible (90%, capped)	Taxable gambling income
Breakeven	$100,000	$100,000	$90,000	$10,000 on zero profit
Net winner	$100,000	$60,000	$54,000	$46,000 on $40,000 of profit
Net loser	$100,000	$150,000	$100,000 (cap)	$0, unchanged from before

The pattern: the haircut bites only when your losses are less than about 1.11 times your winnings. Below that line, 90% of losses is still more than winnings, the cap does the limiting, and the new rule changes nothing. Above it, every dollar of losses you lose is taxed. Breakeven and modest-net-winner years are hit hardest, and the bigger the gross volume behind them, the bigger the phantom income.

Scale it up and it stops being abstract. A sports bettor who wins $2 million and loses $2 million in 2026 deducts $1.8 million and pays tax on $200,000 that never existed. At the top bracket that is roughly $74,000 of federal tax on a year with no economic gain.

Who it hits, and who it does not

• High-volume sports bettors and poker players. Gross winnings and gross losses are both large, and the gap between them is small relative to either. This is the population the rule was effectively written for.
• Professional gamblers. Business expenses sit inside the cap, so the haircut reaches travel, buy-ins, and tools, not just wagering losses.
• Casual players who itemize. The haircut applies to Schedule A losses too. Casual players who take the standard deduction already deducted nothing, so for them the cost is unchanged, and it was already high: winnings reported in full, losses deducted not at all.
• Heavy net losers: unaffected. If your losses exceed about 111% of your winnings, the cap at winnings was already limiting you and the new rule does not reduce your deduction further. The rule does not punish losing. It punishes volume near breakeven.

A point most explainers miss: winnings inflate adjusted gross income whether or not you can deduct the losses. AGI drives phase-outs, credits, Medicare premiums, and state tax. A losing year can still raise your AGI by six figures. That was true before 2026 and it is unchanged.

Why "session" is now the most important word in gambling tax

The 90% rule applies to losses. Losses are a gross figure. How you measure that gross figure is therefore worth real money for the first time.

If every wager is its own transaction, a bettor who cycles $5 million through a sportsbook and ends up flat has $5 million of winnings and $5 million of losses, and the haircut costs $500,000 of taxable income. If the same activity is measured by session, the gross figures shrink and the haircut shrinks with them. The economic result is identical. The tax result is not.

The IRS's session guidance was written for slot machine play. For sports betting, daily fantasy, and online poker there is essentially none. The proposed §165(d) regulations issued in 2026 did not define a session either. That gap is where the analysis has to be built, documented, and defended, and it is the single biggest lever a high-volume player has under the new rule.

Professional or casual: it still matters, differently

Professional status no longer unlocks expense deductions beyond winnings; that door closed in 2018. What it still does: it moves the activity to Schedule C, keeps the loss deduction available without itemizing, changes the AGI picture, raises the self-employment tax question, and puts the qualified business income deduction on the table, where the answer is unsettled. Whether you qualify is a facts-and-circumstances test under a Supreme Court standard, and holding a full-time job makes it harder to meet, not impossible. The determination should be made deliberately, with the supporting facts documented, before the return is filed.

Your state may be worse

State income tax is its own analysis. Several states have never allowed a gambling loss deduction at all and tax gross winnings. Others conform to the federal Code as of a fixed date, which may or may not include the 2026 change. A few are layering their own withholding and reporting rules on top. For many bettors the state result moves the real number more than the federal rule does, and it depends on where you lived, where you bet, and how your state conforms. Do not assume your state follows the federal answer in either direction.

Where repeal stands

As of September 2026: not repealed. Bipartisan bills to restore the full deduction have been introduced in both chambers, including the FAIR BET Act and the FULL HOUSE Act. None has received a floor vote. An attempt to pass a repeal by unanimous consent was blocked, and an attempt to attach one to must-pass legislation was blocked in committee. Some of the bills would restore the 100% figure but leave the 2018 expense rule in place, so even enactment would not return professionals to the pre-2018 regime.

Plan for the rule as written. If repeal passes, the planning was free. If it does not, the planning was the difference.

Can you avoid taxes on gambling winnings?

No, and the people telling you otherwise are selling something. Winnings are income whether or not a W-2G is issued, whether or not the platform reports, and whether or not you ever withdraw the money. Leaving a balance in the app is not a strategy.

What you can control is significant under the 2026 rule, and none of it is exotic:

• How gains and losses are measured. The session analysis above. This is the biggest lever and the least understood.
• Whether you qualify as a professional, and whether claiming it is worth the self-employment tax.
• Whether you itemize, and what else moves when you do.
• Records. Every lever above fails without a contemporaneous log that ties to platform statements and bank activity. Under exam, the record decides.
• Estimated payments. Phantom income is still income for underpayment penalty purposes. A breakeven 2026 with no estimates paid produces a tax bill plus penalties.
• Accounts in other people's names. If your W-2Gs or platform accounts are in a spouse's or friend's name, fix the reporting deliberately, before filing, not by hoping the matching notice never comes.

What to do before December 31, 2026

• Pull year-to-date gross winnings and gross losses from every platform, and compute them two ways: per wager and per session. The gap between those two numbers is your exposure.
• Model the 90% haircut on both figures and check whether you are inside the 1.11 line. If you are, the rest of this list is urgent.
• Fix any wrong-name accounts and information returns now, while the mechanism for splitting reported winnings at the time of payment still applies to the rest of the year.
• Make or true up estimated payments before the January deadline.
• If you have not filed prior years, file them before the IRS writes first. The 2026 rule does not touch those years, and clean prior years make the 2026 position far easier to defend.
• Get the professional-status question answered before the return is prepared, not by the preparer at filing time.

Straight answers