You broke even. You still owe $2,400.

What changed

For decades the rule was simple: if you itemized, you could deduct gambling losses up to the amount of your winnings. Only your net gain was taxed. That's how nearly every other form of income works.

A provision buried in the One Big Beautiful Bill Act changed it. Starting with tax year 2026, the deduction is capped at 90% of losses. The other 10% simply vanishes.

Ten percent sounds like a rounding error. It isn't — because it's calculated on your losses, not on your profit.

The three cases that show the problem

Here's the same rule applied to three bettors. Watch what happens to the last one.

1. You break even.Won $100,000, lost $100,000. You deduct $90,000 → $10,000 of taxable income. At a 24% bracket that's $2,400 owed on zero profit.
2. You make a small profit.Won $201,000, lost $200,000 — you cleared $1,000. You deduct $180,000 → $21,000 of taxable income. That's about $5,040 in tax on $1,000 of profit.
3. You actually lose money.Won $201,000, lost $220,000 — you finished the year down $19,000. You deduct $198,000 → $3,000 of taxable income. You lost nineteen thousand dollars and still owe the IRS.

Why it punishes volume, not profit

The key thing almost nobody catches: your phantom income is 10% of your gross losses. It has nothing to do with how well you did. Two bettors who both finished the year exactly flat can owe wildly different amounts based purely on how much they cycled through.

1. $10,000 of losses→ $1,000 phantom income → about $240 in tax.
2. $100,000 of losses→ $10,000 phantom income → about $2,400 in tax.
3. $1,000,000 of losses→ $100,000 phantom income → about $24,000 in tax.

So the rule falls hardest on exactly the people who are most careful: high-volume, low-margin bettors grinding a small edge. A sharp bettor turning over serious volume for a thin profit can generate a tax bill that swallows the entire year's work. And it hits professionals too — the cap applies to full-time gamblers filing on Schedule C, not just casual filers.

Where the repeal effort actually stands

The backlash was immediate and genuinely bipartisan, and there are real bills in play. But be careful about assuming this gets fixed — as of mid-2026 nothing has passed, and the cap is already in effect.

Two bills matter. Rep. Dina Titus (D-NV) introduced the FAIR BET Act to restore the full 100% deduction. A second, the FULL HOUSE Act, would do effectively the same thing and carries broader bipartisan sponsorship — including Sen. Ted Cruz (R-TX) alongside Nevada Democrats, with a House companion from Rep. Max Miller (R-OH).

Neither has reached a floor vote. An attempt to attach FAIR BET to the defense authorization bill was blocked in the House Rules Committee, and a Senate effort to fast-track the FULL HOUSE Act by unanimous consent was blocked as well. At least one Senate Republican, Sen. James Lankford (R-OK), has said publicly he sees the cap as a minor adjustment not worth reopening.

Pressure is still building: on July 17, 2026, the IRS held an open hearing on the rule, where Rep. Titus, the American Gaming Association, CPAs and both amateur and professional gamblers all testified against it. But testimony isn't law.

It stacks with your state

This is the federal layer. Your state adds its own — and ten states allow no loss deduction at all, taxing your gross winnings outright.

Put both together for that break-even bettor in Connecticut: $2,400 in federal tax on phantom income, plus $6,990 in state tax on gross winnings. That's $9,390 owed on a year that netted exactly nothing.

What to do about it

1. Track gross wins and gross losses separately — all year.The cap is computed on your gross loss figure. If your records only show net profit, you cannot calculate what you owe, and you cannot defend it. This is now the single most important habit for anyone betting with volume.
2. Run the itemize-vs-standard comparison.The 90% deduction only exists if you itemize. Take the standard deduction and your loss deduction is zero — you're taxed on gross winnings, which is far worse than the 10% haircut.
3. Model your liability before December, not in April.Phantom income is still income: it can push you into a higher bracket, raise your AGI, and trigger underpayment penalties if you haven't made estimated payments. Knowing the number in October leaves you options.
4. Reconsider what “volume” costs you.Because the tax scales with losses rather than profit, churn now carries a direct tax cost it never used to. That's worth factoring into how you bet, not just how you file.

How BetTax Pro helps

BetTax Pro tracks gross winnings and gross losses separately across every book and platform you use, applies the 90% cap automatically for 2026, shows the itemize-vs-standard comparison, and layers your state's own rules on top — so you can see your real exposure now, while you can still do something about it.

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