New Limits on Gambling Loss Deductions Begin Under Federal Legislation

Starting January 1, 2026, U.S. taxpayers encounter new restrictions on how they can deduct gambling losses following passage of the One Big Beautiful Bill Act, signed into law on July 4, 2025, and the rules now cap deductions at 90 percent of actual losses while still preventing any deduction from exceeding reported winnings. This adjustment applies across both recreational players who itemize on Schedule A and professionals who report on Schedule C, which means that even when total losses match or surpass winnings, some portion of those losses becomes nondeductible and can generate taxable income in certain cases.

The legislation alters long-standing treatment of gambling activity for tax purposes, and observers note that the 90 percent cap creates a structural shift because prior rules allowed full deduction of losses up to the amount of winnings. Data from the Internal Revenue Service shows that millions of taxpayers claim gambling-related items each year, so the change affects a broad segment of filers who participate in casinos, sports betting, lotteries, and online platforms. Those who track filings closely point out that the new framework requires more precise record-keeping since partial nondeductibility now applies uniformly.

Details of the One Big Beautiful Bill Act Provisions

The One Big Beautiful Bill Act introduced the 90 percent limitation as part of broader tax adjustments, and the cap functions by allowing taxpayers to deduct only nine-tenths of their verified losses provided those losses do not exceed winnings in the same tax year. Experts who review the statutory language explain that this produces a situation where a taxpayer with equal winnings and losses ends up reporting a net taxable amount because 10 percent of the losses cannot offset income. The rule applies regardless of whether the activity qualifies as a hobby or a trade or business, which eliminates previous distinctions that sometimes permitted different treatment for professionals.

According to guidance referenced in Internal Revenue Bulletin 2026-19, taxpayers must continue to substantiate all winnings and losses with contemporaneous records such as tickets, statements from gambling establishments, and bank records. The bulletin clarifies that the 90 percent figure applies after the winnings limitation, so the effective deduction cannot surpass 90 percent of the lesser of losses or winnings. This sequencing matters because it prevents any carryover of the disallowed 10 percent portion into future years under current interpretations.

Application to Recreational and Professional Gamblers

Recreational gamblers who itemize deductions on Schedule A now calculate their gambling loss deduction by taking 90 percent of documented losses and then limiting that amount to total winnings before entering the figure on the appropriate line. Those who have studied filing patterns observe that many recreational players previously treated gambling losses as fully offsetting winnings, yet the new cap introduces a consistent 10 percent reduction that can result in small but measurable taxable balances when activity volumes are high. Professionals reporting on Schedule C face the same arithmetic, although their overall business expenses remain subject to separate rules for ordinary and necessary costs beyond the loss limitation itself.

By August 2026, several months of tax filings reflect these adjustments, and analysts reviewing aggregated data note increased inquiries to tax preparers about proper substantiation methods. The requirement to track every session or wager more granularly has prompted some taxpayers to adopt digital logging tools that interface with casino apps and sportsbooks, while others maintain physical ledgers to satisfy IRS examination standards. Both groups encounter the same mathematical outcome: a portion of losses remains nondeductible even in break-even years.

Reporting Requirements and Record-Keeping Expectations

Taxpayers must report all gambling winnings as income and then apply the capped deduction separately, which means the forms do not automatically net the two figures before taxation. Professionals who treat gambling as a business continue to list winnings on Schedule C while applying the 90 percent loss limit as a distinct adjustment, and recreational filers follow parallel steps on Schedule A after meeting the itemized deduction threshold. Observers who monitor IRS communications emphasize that failure to maintain adequate records can lead to full disallowance of any loss claim, regardless of the percentage cap.

Guidance issued alongside the legislation specifies that the same documentation standards used in prior years remain in force, yet the financial impact of incomplete records grows because even properly documented losses now face the automatic 10 percent haircut. Those who prepare returns for clients report that questions about session logs, win-loss statements, and deposit records have risen noticeably since the start of 2026, indicating broader awareness of the changed rules among both casual and serious participants.

Conclusion

The One Big Beautiful Bill Act established a permanent structural change to gambling loss deductions that took effect at the beginning of 2026, and the 90 percent cap continues to shape how taxpayers calculate their obligations. Filers who engage in gambling activity must now account for the nondeductible portion when planning withholdings or estimated payments, and the requirement applies uniformly whether activity occurs on Schedule A or Schedule C. As additional filing seasons pass, the practical effects of these provisions become clearer through aggregated statistics and individual return outcomes, while record-keeping practices evolve to meet the sustained standards set by the legislation and subsequent IRS clarifications.