Blog · 16 October 2026

Gambling Losses Deduction Under §165(d): The 90% Limit for 2026, Phantom Income, and What Pending H.R. 10357 Would Change for CPA Firms

By Keshav Bansal, CA

The gambling losses deduction changed for tax year 2026. Under IRC §165(d), as amended by the One Big Beautiful Bill Act (P.L. 119-21, §70114), only 90% of wagering losses are deductible, and still only up to wagering gains. A client who breaks even can now owe tax on income they never kept. GamblingNews (Melanie Porter, October 12, 2026) reports that Rep. Steven Horsford renewed his push at the Global Gaming Expo (G2E) in Las Vegas to restore the full deduction. On September 16 the House Ways and Means Committee voted 38–5 to advance H.R. 10357, which carries the fix. That bill is not law. For US CPA firms, the 90% limit is the rule to plan and file under for 2026.

What §165(d) says for 2026

The current text of 26 U.S.C. §165(d)(1) says the deduction for losses from wagering transactions “shall be equal to 90 percent of the amount of such losses during such taxable year” and “shall be allowed only to the extent of the gains from such transactions during such taxable year.” Under §70114(b), the amendment applies to taxable years beginning after December 31, 2025.

Section 165(d)(2) defines “losses from wagering transactions” to include any deduction otherwise allowable under chapter 1 that is incurred in carrying on any wagering transaction. Before OBBBA, that rule applied only to tax years 2018 through 2025. The new text has no end date, so a professional gambler’s business expenses sit inside the same limit as the wagers.

Reporting has not changed

• Winnings are gross income. IRS Topic no. 419 (reviewed September 24, 2026) says gambling winnings are fully taxable. That includes lotteries, raffles, sports betting, horse races and casinos, and covers both cash and the fair market value of prizes such as cars and trips. All winnings go on Schedule 1, including winnings not shown on a Form W-2G.
• Losses are an itemized deduction. Topic 419 allows gambling losses only if the taxpayer itemizes on Schedule A and kept records. They are claimed as “Other Itemized Deductions.” A client who takes the standard deduction pays tax on every dollar of winnings and gets no offset for losses. Generally, nonresident aliens who aren’t residents of Canada can’t deduct gambling losses.
• No netting. IRS Publication 529 (2025) says you can’t reduce winnings by losses and report the difference. Report the full winnings and claim the losses separately. Pub. 529 also says gambling losses include the cost of wagers plus expenses connected with the gambling activity, such as travel to and from a casino.
• W-2G thresholds. The Instructions for Forms W-2G and 5754 (Rev. 01/2026) set the minimum reporting threshold for payments made in 2026 at $2,000, adjusted for inflation in later years. Regular 24% withholding applies to certain winnings (sweepstakes, lotteries, wagering pools, sports wagering and others) when winnings minus the wager are more than $5,000. Fewer forms does not mean less taxable income.

The phantom-income math

GamblingNews gives the basic example: $10,000 of winnings and $10,000 of losses allow only a $9,000 deduction, leaving $1,000 of taxable gambling income in a break-even year. Applying the statute to two more cases:

• Net winner. $50,000 won and $40,000 lost. 90% of the losses is $36,000, which is under the $50,000 of gains, so $36,000 is deductible. Taxable gambling income is $14,000, against an economic gain of $10,000.
• Net loser. $50,000 won and $60,000 lost. 90% of the losses is $54,000, but the gains cap limits the deduction to $50,000. The 90% factor bites only when losses are less than about 111% of winnings.

The full winnings also stay in AGI, because an itemized deduction does not reduce AGI. That can affect AGI-based items such as the taxable portion of Social Security benefits under §86. Clients near the standard-deduction line need an itemize-or-not projection. The same planning applies to charitable bunching and the 0.5% AGI floor.

H.R. 10357 and the FULL HOUSE Act: pending, not law

The introduced text of H.R. 10357, the Digital Asset Tax Certainty Act (GovInfo, September 14, 2026), was introduced by Rep. Jason Smith with cosponsors including Reps. Horsford and Max Miller. Title VII of that text is the “FULL HOUSE Act.” Its Sec. 701 would rewrite §165(d) to allow wagering losses “only to the extent of the gains,” with no 90% factor, and would keep the expense-inclusion rule. The effective date is taxable years beginning after December 31, 2025, so the fix would apply to 2026 if enacted. Congress.gov lists the latest action as September 16, 2026: ordered reported in the nature of a substitute by the yeas and nays, 38–5. The reported text may differ from the introduced bill.

The Las Vegas Sun (September 17) reported that the FULL HOUSE Act language, rather than Rep. Dina Titus’s FAIR BET Act, was what moved. In her own release, Titus said the House “will be out of session until after the election.” GamblingNews reports that no timetable has been announced and that the 90% limit remains in place. The same bill’s crypto wash sale proposal is covered in our wash sale rule and H.R. 10357 article.

Checklist for US CPA firms

• Project 2026 under current law: 90% of losses, capped at winnings, itemizers only. Don’t build the pending fix into estimates or extensions.
• Ask every client with W-2Gs or sportsbook, casino or lottery activity for a full-year win and loss record. Pub. 529 expects a diary showing the date and type of wager, the establishment’s name and location, other people present, and amounts won or lost. Back it up with W-2Gs, Forms 5754, tickets, and the establishment’s win/loss statements or payment slips.
• Review safe harbors and estimates. Topic 419 notes that winnings may require estimated tax, and 24% withholding may not cover the client’s marginal rate on phantom income.
• Flag 2026 returns with large gambling activity. If Congress passes a retroactive fix after filing, those clients may need an amended return.
• For clients who say they gamble professionally, document the trade-or-business facts. Under §165(d)(2), their expenses also count toward the 90% limit.

Where Tax Brew fits

Tax Brew provides bookkeeping, cleanup and tax prep support for US CPA firms, including a first 20 hours free for qualifying engagements. Source documents such as W-2Gs and win/loss statements arrive organized, and your team keeps the advice and sign-off. See our services, or email info@taxbrewglobal.com.

Sources: GamblingNews — Another Push: Nevada Wants to Restore Full Gambling Loss Tax Deduction (Melanie Porter, Oct. 12, 2026); Las Vegas Sun (Sept. 17, 2026); Rep. Dina Titus release; 26 U.S.C. §165 (Cornell LII); H.R. 10357 introduced text (GovInfo); H.R. 10357 actions (Congress.gov); IRS Topic no. 419; IRS Publication 529 (2025); Instructions for Forms W-2G and 5754. General information, not tax or legal advice.