The Tax Treatment of Gambling Winnings & Losses Under OB3

The tax treatment of gambling winnings and losses has long been a point of focus in U.S. tax law. Over time, changes in legislation have significantly affected how both casual and professional gamblers report income and claim deductions.

This article provides an overview of the historical rules, the modifications introduced by the Tax Cuts and Jobs Act of 2017 (TCJA), and the most recent updates under the One Big Beautiful Bill (OB3), enacted in Public Law 119-21, Sec. 70114, on July 4, 2025. The changes implemented by the OB3 will be effective with respect to the 2026 tax year.

Tax Treatment of Gambling Winnings

All gambling winnings—regardless of the amount, source, or where the gambling took place—must be reported as income. This includes winnings from casinos, lotteries, sports betting, raffles, and even informal bets, whether or not the taxpayer receives a Form W-2G or similar tax document.

Taxpayers who receive a W-2G, similar tax document, or who have gambling winnings in a state other than their resident state should expect to file an income tax return in that state to report their income and, if applicable, withholdings. These filings can add to the complexity of filings for the taxpayer in any given year.

As an example, if a taxpayer, who is a resident of Texas, travels to Louisiana to gamble and receives a Form W-2G from Louisiana, the taxpayer should expect to file a nonresident Louisiana income tax return.

Gambling Expenses Now Treated as Gambling Losses

Under the One Big Beautiful Bill, ordinary and necessary expenses related to gambling activities such as travel, entry fees, and other business-like costs—are now treated as gambling losses. This change applies to both casual and professional gamblers.

Deductibility of Gambling Losses

Historically, individuals have been allowed to deduct gambling losses only to the extent of their reported gambling winnings. This deduction is available only if the taxpayer itemizes deductions on Schedule A (Form 1040).

In practical terms:

• You cannot deduct more in losses than you report in winnings.

• Gambling losses cannot be used to offset other types of income.

This framework was further tightened by the TCJA, which clarified that professional gamblers could no longer deduct gambling-related business expenses (such as travel or tournament fees) more than their gambling winnings. This effectively eliminated the ability to create a net operating loss from gambling activities.

New Limitation on Gambling Loss Deduction

Beginning in tax year 2026, the One Big Beautiful Bill legislation adds a further restriction:

• The deduction for gambling losses is now limited to 90% of total wagering losses.

• As before, gambling losses can only offset gambling winnings and no other forms of income.

This means that even after applying the 90% cap, the deductible amount is still limited to the lesser of that result or total gambling winnings.

Example for a Casual Gambler

As an example, in 2026, assume Casual Gambling Glenda had $35,000 in gambling winnings and $37,000 in losses. Glenda includes $35,000 in gross income and can deduct 90% of $37,000 = $33,300 of losses on Schedule A.

Let’s take the example above and say that Glenda’s gambling winnings were $32,000. In this case, Glenda includes $32,000 in gross income. She can deduct $32,000 of losses on Schedule A. 90% of $37,000 = $33,300; however, these losses are still limited to the amount of income.

Lastly, let’s further change the scenario such that Glenda had a really great year, and her gambling winnings were $45,000 and her losses were $20,000. We’ll also assume that Glenda is going to file her return as married filing jointly with an expected standard deduction of $33,100 and that she has no other eligible itemized deductions. Glenda’s gross income will include $45,000 of gambling winnings. However, her gambling losses would be limited to $18,000. Due to the fact that these would be reported on Schedule A and that the standard deduction of $33,100 is more advantageous than her eligible itemized deductions of $18,000, Glenda receives no benefit from the gambling losses for 2026.

This highlights a key tax planning issue: even when losses are deductible under the law, taxpayers who take the standard deduction will not receive any tax benefit unless their total itemized deductions exceed the standard deduction.

Example for a Professional Gambler

As an example, in 2026, assume Professional Player Parker had $750,000 in gambling winnings, $500,000 in losses, and $76,000 of business expenses. Parker’s Schedule C would report $750,000 of gross income and only $518,400 of expenses (90% of $500,000 + $76,000). His net income, subject to self-employment taxes, is $231,600.

Under the pre-OB3 bill, Parker’s net income would have been $750,000 less $500,000 of gambling losses less $76,000 of business expenses, which equals $174,000. Due to OB3, Parker has $57,600 of additional taxable income.

Keeping Adequate Records

To claim a deduction for gambling losses, the IRS requires taxpayers to maintain thorough and accurate records. This includes:

• Receipts, tickets, statements, or similar documentation.

• A log or diary that includes dates, locations, types of wagers, amounts won and lost, and names of establishments or individuals involved.

Conclusion

The recent changes introduced by the One Big Beautiful Bill reinforce the importance of accurate reporting and diligent recordkeeping for taxpayers involved in gambling activities. As always, individuals—particularly those with significant or professional-level gambling activity—should consult with a qualified tax professional to ensure compliance and optimal tax treatment.

Need help navigating the tax rules for gambling income and losses? Contact Parks Tax & Consulting PLLC for expert guidance tailored to your situation.

This post may not contain a complete analysis of the tax issues discussed herein and does not represent official conclusions or advice regarding the matter.