The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, limits gamblers to claiming 90% of wagers as a deduction against gambling income. The change applies to both professional and amateur gamblers, and it was met with immediate criticism by gamblers and the gambling industry.
Just a few days after the OBBB was passed, lawmakers proposed a new bipartisan bill, the Fair Accounting for Income Realized from Betting Earnings Taxation (FAIR BET) Act, that seeks to restore the deduction for wagers to 100% of gambling income.
If you have gambling income or if you prepare returns for gamblers, you must understand the new requirements and how to stay compliant. If the OBBB’s new rules on gambling deductions stand, gamblers will face tax on phantom income and increased tax on winnings. An experienced tax attorney can help – to get guidance today, contact us at Wiggam Law.
Key takeaways
- The OBBB limits deductions against gambling winnings to 90% of wagers.
- Professional gamblers report winnings and expenses on Schedule C, but they can only deduct up to 90% of wagers.
- Casual gamblers can only deduct losses if they itemize their deductions – under the OBBB, their loss deductions are also limited to 90% of wagers.
- This OBBB rule will increase tax liabilities for gamblers who win or break even.
- If you owe taxes due to gambling income, talk with a tax professional about setting up payments or making other arrangements.
OBBB Limitation on Gambling Deductions
The OBBB limits gambling deductions for wagers to 90% of wagers. This new rule does not create any tax effects for gamblers who wagered more than they won, but it creates tax liabilities on phantom income for gamblers who break even. It may also increase taxes on gamblers who show a gain for the year.
To explain, imagine someone wins $100,000 gambling. But they really only broke even for the year because they also wagered exactly $100,000. Under the OBBB, they can only deduct 90% of wagers, meaning they’ll be taxed on $10,000 in gambling income, even though they didn’t pocket any winnings.
Why did the OBBB change the rules for gamblers?
Analysts say that the OBBB changed the rule for gamblers to make up for tax revenue that was likely to be lost once the TCJA ban on claiming non-wagering expenses expires.
The Tax Cuts and Jobs Act (TCJA), signed into law in 2017, banned professional gamblers from claiming non-wagering business expenses (for example, travel and meal expenses) on their tax returns. That rule expires at the end of tax year 2025. For tax year 2026, professional gamblers are subject to the 90% limitation on their wagering claim but can claim other expenses. However, professional gamblers cannot claim a net operating loss (NOL) as most other businesses can.
Tax Implications for Gamblers
The main tax implication is that gamblers who break even will now have taxable income. Gamblers who have wins for the year may be subject to a higher tax liability than in previous years.
| Losing year | Breakeven year | Winning year | |
|---|---|---|---|
| Winnings | $1 million | $1 million | $1 million |
| Wagers | $1.2 million | $1 million | $500,000 |
| Deductible wagers | $1 million | $900,000 | $450,000 |
| Actual earnings | ($200,000) | $0 | $500,000 |
| Taxable gambling income under the OBBB | $0 | $100,000 | $550,000 |
The new legislation is likely to increase audit risk for gamblers, especially professional gamblers who file a Schedule C or casual gamblers who claim deductions against winnings.
How to Report Gambling Income
The rules on reporting gambling income were not changed by the OBBB. Gamblers must still report income as follows:
- Hobby gambling wins reported on Schedule A as other income – this includes wins from online betting sites, casinos, lotteries, etc.
- Deducting losses against wins for non-pros – casual gamblers may only deduct losses if they itemize their deductions. If so, as of tax year 2026, they can only claim up to 90% of their wagers, up to the amount won.
- Determining if you’re a professional gambler – if you qualify as a professional gambler, you can report your gambling winnings and expenses as if you are a business. However, you need to be sure that you meet the criteria to be classified as a professional gambler. If you report gambling on a Schedule C, the IRS may scrutinize your return to see if you’re a professional. If not, they’ll require you to report the income as other income on a Schedule A and disallow your business deductions.
- Claiming gambling business expenses on Schedule C – if you do qualify as a professional gambler, you should report winnings and expenses on Schedule C. But be aware that as a gambler, you’re subject to rules that other business owners aren’t. Namely, you cannot claim a net operating loss, and from tax years 2017 to 2025, you could not claim non-wagering expenses.
It’s critical to work with a tax preparer who has experience with gambling income – especially if you’re a professional. If you’re selected for an audit or the IRS adjusts your return, it’s also equally important to work with a tax resolution attorney who understands gambling income and the nuances around that.
Finally, keep detailed records and receipts in case you’re selected for an audit. Records you should keep include gambling logs with wagers, dates, and net winnings; receipts from casinos; and wagering statements from online gambling sites.
Red Flags for Gambling Audits
The IRS may randomly select your return for an audit, but the agency also uses a variety of computer programs and algorithms to scan returns for signs of potential issues. Here are just some of the reasons returns with gambling income may get selected for an audit:
- Disallowed audits and deductions – professional gamblers should typically use the NAICS code of 713990, All Other Amusement and Recreation Industries. Although this code is not just for professional gamblers, the IRS will see if you’ve claimed deductions or losses that are not allowed for the gambling industry.
- Using the wrong NAICS code – Because there’s not a specific NAICS code for gamblers, some tax preparers accidentally use code 713200, which is for the gambling industry but should only be used by businesses that take wagers, not gamblers themselves. Accidentally using this code can subject your return to additional scrutiny.
- Discrepancies between your return and payer reports – The IRS typically knows if you’ve won a big bet because the payer sends a statement to the IRS – for example a W-2G will show gambling winnings, and if the IRS’s computers don’t see that income on your return, they’ll either adjust the return and send you an underreporter notice or select you for an audit.
In all cases, adjustments to your return may lead to increased tax liabilities and penalties. If you disagree with the adjustment, you may need to appeal or request audit consideration – the right steps depend on the situation. To avoid a tax liability, be aware of the rules – professional gamblers may also want to increase their quarterly estimated payments.
What to Do If You Incur a Tax Liability Due to Gambling Income
If you incur a tax liability and penalties due to underreported gambling income, disallowed deductions, or phantom income created under the terms of the OBBB, you should:
- Make sure you agree with the adjustments – the IRS makes mistakes. Review the changes to ensure they align with the latest tax legislation. If not, reach out to the IRS or contact a tax professional.
- Request penalty relief – to reduce your liability, request penalty relief. You may qualify for relief due to reasonable cause or first-time abatement. Also, the IRS is often more willing to give penalty relief in the first year after a major tax law change has been implemented.
- Set up payment arrangements – if you can’t afford to pay the tax liability, you may want to request an installment agreement or apply for an offer in compromise, a partial payment agreement, or currently not collectible status.
Get Guidance on Gambling Income and Deductions
The OBBB’s limitation on claiming all wagers against gambling winnings has the potential to create tax liabilities on phantom income and to increase taxable income for gamblers who have a win for the year. If you’re facing an unexpected tax liability, an audit of your gambling income, or any other tax problems, you need the right defense.
At Wiggam Law, our 10+ years of experience mean that we’re ready for anything. We can also help you deal with confusion, penalties, or audits related to other aspects of the OBBB, including tax on overtime, Opportunity Zones, Qualified Small Business Stocks, and the impact of the OBBB on 1099 freelancers.
Our experienced team of tax attorneys, enrolled agents, and paralegals is always up-to-date on the latest laws and best practices for dealing with the IRS. Don’t wait and don’t deal with the IRS on your own – instead, contact us for a consultation today.
FAQs
When does the 90% limit on deducting gambling wagers take effect?
This new rule applies starting in tax year 2026. You can still claim 100% of wagers, up to the amount of your winnings for tax year 2025. However, new legislation may override the OBBB’s terms. Check with your tax preparer for information about the latest guidance to ensure that you file your 2026 and future tax returns correctly.
Does the new rule apply to both casino and online gambling?
Yes, the OBBB’s limitation on deducting gambling wagers applies to all types of gambling winnings and wagers, including online and in-person gambling.
What records do I need to prove gambling losses to the IRS?
You don’t need to send documentation with your tax return, but you will need to provide it if you’re selected for a tax audit. Keep all records that show you made a wager.
Will my state follow the federal 90% limitation?
This limitation is likely to apply to both state and federal taxes. However, tax laws vary from state to state. Some states automatically adopt federal rules on taxable income, while others make various adjustments to federal taxable income to calculate state taxable income. Check with your state’s department of revenue to learn state-specific rules.
Should I itemize deductions if I report gambling winnings?
In general, you should only itemize deductions if the total of your itemized deductions exceeds the standard deduction for your filing status. If 90% of your gambling wagers, up to the amount of your winnings, are close to your standard deduction, look at other itemized deductions (state and local taxes, healthcare expenses over 7.5% of AGI, etc) to see if it makes sense to itemize.
Will I owe tax on gambling winnings if I had an overall loss for the year?
Potentially. You will owe tax if you’re a casual gambler and you don’t itemize deductions. You may also owe tax if you’re a professional gambler and 90% of your losses are less than your winnings. To illustrate, imagine that you won $1 million and wagered $1.1 million. You can claim up to 90% of your wagers ($990,000 in this case), which means that you’ll have $10,000 in taxable income, even though you really didn’t win any money this year.
Contact Wiggam Law for Help Today
If you’ve received an IRS notice about unreported gambling income or your deductions were denied, contact Wiggam Law for help. Our experienced tax attorneys can assist with IRS correspondence, documentation issues, and resolving tax debt tied to gambling winnings.
We can also help you with any other tax problems related to the OBBB’s new rules – including overtime reporting for employers, new reporting requirements for 1099s, changes to Opportunity Zone tax incentives, and new rules about Qualified Small Business Stock. Don’t wait, contact us for a consultation today.
