Most of the tax fights in US betting are at the state level (New York's 51% operator rate, Illinois's per-wager surcharge, the new prediction-market taxes). This one is federal, it applies everywhere, and it lands on the bettor rather than the sportsbook. Buried in the One Big Beautiful Bill Act, signed into law on July 4, 2025, is a change to the way gambling losses are deducted. Effective for tax year 2026, you can no longer deduct 100% of your losses against your winnings. You can deduct 90%.
That sounds small. It is not, because of how gambling has always been taxed. Winnings are fully taxable, and losses are only deductible up to the amount of your winnings, and only if you itemize. Cutting the deductible portion to 90% breaks the one thing that kept the system fair for people who bet a lot: the ability to zero out a break-even year.
The phantom-income problem
Here is the example that has the betting world upset. Say that over 2026 you wager heavily and finish exactly even: $50,000 in winnings and $50,000 in losses. You walked away with nothing. Under the old 100% rule, your $50,000 of losses fully offset your $50,000 of winnings, and you owed no tax on the activity. Under the new 90% rule, you can deduct only $45,000 of those losses. You are now taxed on $5,000 of income you never actually made. That is what people mean by phantom income: a tax bill on money that is not in your pocket.
The more you bet, the worse it gets, because the 10% haircut applies to gross losses, not net results. A high-volume bettor churning hundreds of thousands of dollars through a sportsbook can rack up a large disallowed-loss figure while barely finishing ahead, or even behind.
Who this actually affects (and who it does not)
The change is a real problem for a specific group: high-volume and professional bettors, and anyone who itemizes and reports significant gambling winnings and losses. If you move a lot of money and rely on deducting losses to reflect your true net result, the 90% cap can create tax on income you did not earn.
It matters far less, or not at all, for the typical recreational bettor. If you do not itemize your deductions, you were not deducting gambling losses in the first place, so nothing changes for your net-loss recreational play. The people who feel this are the ones betting at volume and doing the itemized math every April. If that is you, the practical advice is old but now more important: keep meticulous session records, because the paperwork is the only thing standing between you and an overstated bill.
The repeal push
The backlash was immediate and, unusually, bipartisan. On July 23, 2025, Rep. Andy Barr (R-KY) filed the WAGER Act (H.R. 4630), the Winnings and Gains Expense Restoration Act, to put the deduction back to 100%. It is one of at least three federal bills aiming to restore the full deduction, with sponsors from both parties who argue the change taxes phantom income and pushes serious bettors toward offshore books that report nothing to the IRS. As of now, all of them remain pending; none has passed, and the 90% rule is the law for the 2026 tax year unless and until Congress acts.
Separately, and more favorably for bettors, the IRS is finally raising the decades-old slot-jackpot reporting threshold that had been stuck at $1,200 since the 1970s, a small piece of good news that has been lost in the noise around the deduction change.
Our take
This is the most consequential tax change for US bettors in years, and most casual fans still have not heard of it because it does not touch the recreational net-loser who takes the standard deduction. But for the high-volume audience that drives most of the handle, it is a meaningful shift, and the phantom-income math is genuinely unfair: taxing someone on money they did not win is hard to defend on principle, which is exactly why the repeal effort has support across the aisle.
Our read: some fix is likely eventually, because the politics of it are bad and the offshore-migration argument is real, but do not count on it for this tax year. If you bet at volume, assume the 90% rule applies to 2026, keep clean records, and talk to a tax professional before you file. This is reporting, not tax advice, and everyone's situation is different.