Gambling Loss Deduction 90 Percent Limit 2026: Break Even and Still Owe.

A software engineer who bets on NBA games through an app finishes 2026 up $2,000. His account history shows $120,000 of winning wagers against $118,000 of losing ones. In 2025 that was a $2,000 tax item. For 2026 it is a $13,800 tax item, and the difference is money he never held. The gambling loss deduction 90 percent limit that took effect this January is why, and it applies whether you bet $500 a year or $500,000.

The old §165(d) was one sentence: losses from wagering transactions were allowed only to the extent of gains from wagering transactions. Win $120,000, lose $118,000, and you reported the $120,000 as income, deducted the $118,000 on Schedule A, and paid tax on the $2,000 you actually cleared. The gains cap stopped anyone from writing a losing year off against wages, and that was the whole rule.

The 2025 act put a second limit in front of the first. The deduction now equals 90% of losses, then gets capped at gains. Order matters, because the cap never hands back what the haircut takes. Lose $118,000 against $120,000 of winnings and the deduction is $106,200, not $118,000, with the extra $11,800 taxed at your marginal rate. The haircut scales with volume rather than profit, which is how a high-volume bettor who breaks even ends up owing five figures.

Treasury put the mechanics in writing on April 17, 2026 with proposed regulations REG-113229-25, published at 91 FR 20599. They would amend Treas. Reg. §1.165-10 to allow 90% of wagering losses only to the extent of gains, and on a joint return to run the test on the spouses' combined losses against their combined gains rather than separately. Comments closed June 16, 2026, and at the July 17 hearing every speaker called the rule unfair. None of that moves the number. The 90% sits in the statute, and only Congress can take it out.

Here is that same bettor with a $95,000 salary, no other itemized deductions, and a year of app-based sports wagering that netted him $2,000.

$2,658 of federal tax on $2,000 of real profit is a 133% rate on the winnings, and it worsens as volume climbs with profit flat. Double the action and the phantom income doubles to $23,600 on $4,000 of cash. Losses drive the number, not net.

There is a second trap sitting under the first. Wagering losses are an itemized deduction on Schedule A, line 16, so they do nothing until your total itemized deductions clear the standard deduction, $16,100 single and $32,200 married filing jointly for 2026 under Rev. Proc. 2025-32. A recreational player who wins $18,000, loses $18,000, and has no mortgage interest gets a $16,200 deduction against a $16,100 standard deduction. That is a benefit of $100 on $18,000 of reported income. The winnings also lift adjusted gross income, which raises the new 0.5% floor on charitable deductions and every other AGI-tested item on the return.

Section 70433 of the same act raised the general reporting threshold in §6041(a) from $600 to $2,000 for payments made after December 31, 2025, with annual inflation indexing under a new §6041(h) for years after 2026. The proposed regulations conform Treas. Reg. §1.6041-10, replacing the $1,200 bingo and slot machine threshold and the $1,500 keno threshold with $2,000 for calendar year 2026. The $1,200 figure had not moved since 1977. The same statutory change drives the new 1099 reporting threshold on the business side.

Withholding did not change. Under §3402(q) the payer withholds 24% when proceeds exceed $5,000 and are at least 300 times the wager, and bingo, keno, and slot machine wins sit outside regular gambling withholding entirely. Fewer Forms W-2G is not less income. Every dollar of wagering gain is gross income under §61 whether a form reports it or not.

Filing a Schedule C does not get you out of §165(d). In Mayo v. Commissioner, 136 T.C. 81 (2011), the Tax Court held that a professional horse bettor's wagering losses were capped at his gains, but that his non-wagering business expenses, meaning the office, the data, the travel, were deductible under §162(a) without that cap. The 2017 act overrode the second half by defining losses from wagering transactions to include any deduction incurred in carrying one on, and that language was set to expire after 2025. The 2025 act made it permanent and stacked the 90% haircut on top, so a full-time bettor's expenses get trimmed by 10% alongside the losing tickets.

The haircut is computed on reported losses, so the work is reporting the real transaction instead of every ticket gross. For slot play the IRS accepts session accounting. Advice Memorandum 2008-011 measures a session from buy-in to cash-out, and the Tax Court adopted that method in Shollenberger v. Commissioner, T.C. Memo. 2009-306. A day showing $9,000 of jackpots against $8,600 of coin-in is a $400 session gain, not $9,000 of gains and $8,600 of losses, and the 10% haircut shrinks with it. Notice 2015-21 proposed a formal safe harbor for electronically tracked slot play and was never finalized, so treat it as persuasive, not binding.

I would not stretch sessions to sports betting. Each wager on an app settles on its own terms, and I expect the IRS to want them reported one at a time. If your action is on a book rather than a floor, plan on the full haircut and manage the cash instead. Books rarely withhold on straight bets, so a $13,800 swing in taxable income arrives as a balance due in April. An estimated payment in the quarter you win, or 110% of your 2025 tax paid in through withholding, keeps the §6654 penalty off it.

For someone with $2,000 of action a year this is noise, not worth restructuring anything over. It bites at volume, and it bites hardest on the bettor whose year lands near break-even, which describes most people who bet seriously. The FAIR BET Act, H.R. 4304, would put the number back to 100%, and the House Rules Committee declined to attach it to the defense bill in May 2026. Plan on 90% for the 2026 return.