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Gambling losses can be deducted from taxable income, but only if you itemize deductions on Schedule A and only to the extent of winnings, according to the Internal Revenue Service. The One Big Beautiful Bill Act, signed into law in 2025, imposes an additional 90% cap on deductions for gambling losses for tax years starting January 1, 2026.
For a taxpayer who won and lost during the year, the new rules dictate how much of those gambling losses can reduce taxable income. Here's how it works:
How Gambling Deductions Work
The IRS requires taxpayers to report all gambling winnings as income, and lets those who itemize deduct losses on Schedule A. For the 2025 tax year and earlier, losses could be deducted in full, up to the total amount of winnings.
Under those rules, a taxpayer who won $10,000 could deduct up to $10,000 in losses from the same year.
However, taxpayers must itemize on Schedule A to claim this deduction. The standard deduction, which is used by those taking the flat amount deduction, does not allow the deduction of gambling losses according to federal law.
The 90% Cap in the One Big Beautiful Bill Act
Beginning with the 2026 tax year, the federal gambling tax law is more restrictive as a result of a change made by the One Big Beautiful Bill Act. The new law caps gambling loss deductions at 90% of the amount lost, and the deduction still cannot exceed gambling winnings for the year.
Here's an example to illustrate: Say a taxpayer had $10,000 in gambling winnings and $10,000 in losses in a single tax year, and is itemizing their deductions. Before 2026, all $10,000 of losses could be deducted from that year's income. But for a 2026 return, 90% of the $10,000 in losses can be claimed as a deduction, and only $9,000 could be deducted. The last $1,000 in losses generates no additional tax relief.
Records the IRS Expects
To support a gambling loss deduction, taxpayers should maintain detailed records. The IRS recommends documenting all gambling activities with a gambling log that shows the:
- Type of gambling
- Dates of wins and losses
- Location (casino, race track, etc.)
- Amounts won and spent
Documentation such as W-2G forms from a casino, receipts or payout records from horse tracks, and checking or slot club statements, also back up any amounts reported. Any records must cover both wins and losses, and should match the transactions shown in bank or player club records.
What to Watch For
Gross gambling winnings are reported on an individual tax return whether or not the taxpayer itemizes, and the subsequent loss deduction is a Schedule A item. Each state's laws on how to report gambling income and losses may be different from the federal approach. Individuals with significant gambling activity should check their state's requirements for any additional reporting.
Pitfalls
One common misunderstanding is treating a recreational gambling loss as a casualty loss; for recreational gamblers, losses only offset gambling winnings from the same tax year and require Schedule A itemization.
Another frequent error is incorrectly deducting gambling losses under the standard deduction, which does not permit this deduction.
Also, the 90% cap applies starting with the 2026 tax year, so it does not change a 2025 return.
Overall, the IRS wants to see proof of gambling activity and exact amounts recorded to allow a gambling-loss deduction, and since the standard deduction is used by the majority of taxpayers, many lose out on this tax break.