Gambling loss deduction 2026: the OBBBA's 90% rule and the phantom-income trap

Starting with tax years beginning after December 31, 2025 -- the 2026 tax year -- the One Big Beautiful Bill Act (OBBBA) caps the itemized deduction for gambling losses at 90% of those losses, still capped at your winnings for the year as it always has been. That one change creates a real, if narrow, trap: it's possible to come out exactly even, or even behind, on your actual gambling for the year and still owe federal income tax because of it. Every figure below comes from our gambling loss deduction calculator, built directly from 26 U.S.C. §165(d) and Treasury's proposed regulation at 26 CFR §1.165-10.

The rule in one sentence

For 2026 and later, the deduction for losses from wagering transactions equals 90% of those losses, and -- unchanged from every prior year -- cannot exceed your gains from wagering transactions for the year. In formula terms: allowed deduction = the smaller of (90% of your losses) or (your winnings). Before 2026, it was simply the smaller of (100% of your losses) or (your winnings). The statute states these as two independent limits on the same deduction amount -- 90% of losses, separately capped at winnings -- not 90% applied after the winnings cap is already taken; Treasury's proposed regulation confirms this by stating the whole computation as a single sentence in that exact order.

The phantom income trap

Say you won $50,000 gambling this year and also lost $50,000 -- net result, exactly $0. Before 2026, you'd report $50,000 of winnings as income and deduct the full $50,000 of losses (itemizing, and capped at winnings, which here equals losses exactly), landing at $0 of taxable gambling income. Starting in 2026, you can only deduct 90% of that $50,000 of losses -- $45,000. You still report the full $50,000 of winnings as income, but can now only deduct $45,000 against it. That leaves $5,000 of taxable income you never actually kept, purely because of the 90% haircut. That $5,000 is "phantom income": real tax, on money that isn't there.

This isn't limited to break-even gamblers. Anyone whose losses are at or below their winnings for the year loses exactly 10% of their losses to this effect -- it's always 10% of losses in that range, no more and no less. It's only once your losses climb far enough above your winnings (more than about 11% above) that the old "capped at winnings" rule starts binding under both the old and new law equally, and the extra 90% haircut stops mattering -- see the fourth worked example below.

It only exists if you itemize -- same as always

Gambling losses have only ever been deductible on Schedule A ("Other Itemized Deductions"), and that hasn't changed. If you take the standard deduction, you get $0 benefit from any gambling-loss deduction, old rule or new -- your winnings are fully taxable income (reported on Schedule 1, line 8b) regardless. Treasury's own estimate, published alongside its proposed regulation, is that roughly 2.3 million individual returns report gambling winnings in a typical year, but fewer than a third of those -- about 673,000 projected for 2026 -- itemize and actually claim the loss deduction. For the large majority of people who report any gambling winnings at all, this entire provision is irrelevant, because they take the standard deduction either way.

There's a sharper version of this worth knowing: the 90% haircut can be big enough to flip you out of itemizing altogether, even if you were comfortably itemizing before. If your itemized total (gambling-loss deduction plus everything else -- mortgage interest, charitable giving, etc.) cleared the standard deduction under the old 100% rule but falls below it once the deduction shrinks by 10%, you don't just lose 10% of the gambling deduction -- you lose all of it, plus the benefit of every other itemized deduction you were counting on. See the fifth worked example below; it's a bigger hit than the mechanical 10% haircut by itself.

Six worked examples

Break-even gambler: $50,000 won, $50,000 lost, single filer with $9,000 of other itemized deductions and the 2026 standard deduction of $16,100. Pre-2026, the deductible loss is the smaller of $50,000 (100% of losses) or $50,000 (winnings) -- the full $50,000, leaving $0 of taxable gambling income. Under the 2026+ rule, the deductible loss is the smaller of $45,000 (90% of losses) or $50,000 (winnings) -- $45,000 -- leaving $5,000 of phantom taxable income despite netting exactly $0 on the actual gambling. Itemizing ($54,000 total) still easily beats the $16,100 standard deduction either way.

Modest net loss: $40,000 won, $42,000 lost -- this gambler is down $2,000 overall for the year, same filer profile as above. Pre-2026, the deductible loss is capped at winnings: the smaller of $42,000 (losses) or $40,000 (winnings) is $40,000, leaving $0 of taxable gambling income, which matches the real-world $0 floor (losses beyond winnings were never deductible, old rule or new). Under the 2026+ rule, the deductible loss is the smaller of $37,800 (90% of $42,000) or $40,000 -- $37,800 -- leaving $2,200 of taxable phantom income, even though this gambler lost $2,000 of real money for the year. Owing tax while net down for the year is exactly the scenario this rule creates.

Big net winner: $100,000 won, $20,000 lost. Since losses are well under winnings, the deductible loss is simply 90% of losses either way: $20,000 pre-2026, $18,000 under the 2026+ rule, for $2,000 of phantom income -- exactly 10% of the $20,000 of losses, the same clean 10%-of-losses result you get any time losses don't exceed winnings.

Heavy net loser: $10,000 won, $50,000 lost -- a much bigger loser than winner. Pre-2026, the deduction is capped at winnings: the smaller of $50,000 or $10,000 is $10,000. Under the 2026+ rule: 90% of $50,000 is $45,000, but that's still larger than the $10,000 winnings cap, so the deduction is still capped at $10,000 -- identical to the old rule. Zero phantom income. Once your losses exceed your winnings by more than about 11%, the winnings cap is already the binding constraint under both rules, and the 90% haircut stops costing you anything extra -- it only bites when losses are close to, at, or below winnings.

The itemizing flip: $8,500 won, $8,500 lost (break-even again), single filer with $8,000 of other itemized deductions and a $16,100 standard deduction. Pre-2026: deductible loss is $8,500, itemized total is $16,500 -- itemizing wins by $400. Under the 2026+ rule: deductible loss drops to $7,650 (90% of $8,500), itemized total drops to $15,650 -- now below the $16,100 standard deduction, so the standard deduction wins by $450 instead. This filer doesn't just lose $850 (10% of $8,500) to the haircut -- they lose the entire $8,500 gambling-loss deduction AND the benefit of their other $8,000 of itemized deductions, because the shrunken total no longer clears the standard-deduction bar. Their taxable gambling income jumps from $0 to the full $8,500 of winnings -- a much bigger hit than the mechanical 10% haircut alone.

Small-scale casual gambler: a married couple filing jointly reports $3,000 of combined slot-machine winnings and $3,200 of combined losses for the year, with $30,000 of other itemized deductions (mortgage interest, charity) comfortably clearing the $32,200 joint standard deduction either way. Pre-2026 deductible loss: $3,000 (capped at winnings). 2026+ deductible loss: 90% of $3,200 is $2,880, still under the $3,000 winnings cap, so $2,880 is allowed -- $120 of phantom income. Small dollars, but the same mechanism: this couple's itemized total stays comfortably above the standard deduction regardless, so the only effect here is the clean $120 haircut. (Treasury's proposed regulation on joint returns computes this limit on the couple's combined winnings and losses, not spouse by spouse -- enter the household total.)

Who this doesn't affect

If you take the standard deduction, none of this changes anything for you -- you already got $0 benefit from gambling losses under the old rule, and you still get $0 under the new one. Treasury's own estimate is that itemizers claiming this deduction are a small slice -- about 673,000 returns projected for 2026 -- of the roughly 2.3 million returns reporting any gambling winnings at all.

Where to report it, and the session-netting wrinkle

Winnings are reported as income on Schedule 1 (Form 1040), line 8b, regardless of whether you itemize. Losses, if you itemize, go on Schedule A, line 16 ("Other Itemized Deductions"), and that line has always been capped at winnings -- that mechanic is untouched by OBBBA; only the 90% multiplier is new. One wrinkle worth knowing: the IRS has long taken the position (Chief Counsel Advice 2008-011, applied in cases like Shollenberger v. Commissioner) that gains and losses should be netted on a per-session basis -- a day where you fed $500 into a slot machine and cashed out $520 is one $20 session gain, not $500 of winnings and $480 of losses -- rather than added up bet by bet. That session-level netting happens before the totals you'd enter here; this calculator takes your already-netted annual winnings and losses as given, the same way you'd enter a final SALT-paid figure into a SALT calculator rather than re-deriving it from every property tax bill.

The repeal effort: current law, not settled politics

There's real, bipartisan appetite in Congress to undo the 90% rule. Rep. Dina Titus's FAIR BET Act would restore the deduction to 100%, and a related fix was folded into H.R. 10357, the Digital Asset Tax Certainty Act, which the House Ways and Means Committee advanced 38-5 on September 16, 2026 -- committee chair Jason Smith has publicly called the 90% provision "a mistake." But as of this guide's last check (October 2026), that bill has not had a House floor vote, has not passed the Senate, and has not been signed into law. An earlier attempt to attach the fix to the FY2026 NDAA was blocked by the House Rules Committee in January 2026. The 90% rule is current, operative law for the 2026 tax year -- plan around it as written, not around a repeal that hasn't happened. Check for updates before relying on this if you're reading it well after October 2026.

Rules to get right

• The 90% limit and the "capped at winnings" limit are two separate ceilings on the same deduction, both applied to the same number -- not one applied to the other's result. The order doesn't actually change the answer much in practice (see the worked examples), but "90% of losses, then capped at winnings" is the statute's and the proposed regulation's own order.
• This only matters at all if you itemize. No itemizing, no gambling-loss deduction, old rule or new -- and that was true long before OBBBA.
• Phantom income from the mechanical 10% haircut is capped at 10% of your losses, and shrinks to $0 once your losses exceed your winnings by more than about 1/9 (11.1%) -- it's really only a concern for people whose losses are close to, at, or below their winnings for the year.
• A separate, bigger effect can happen if the haircut pushes your itemized total below the standard deduction when it wasn't before -- that's a full loss of the deduction (and every other itemized deduction), not just a 10% trim.
• Professional gamblers who report gambling as a trade or business (Schedule C) are subject to the same 90%/winnings-cap limitation on their wagering losses specifically -- this calculator and guide only address the casual, Schedule A case.
• Married filing jointly: use the household's combined winnings and combined losses, not one spouse's figures alone.

Run your own numbers in the gambling loss deduction calculator. This is an illustration of the mechanics, not tax advice; a real return has details (per-session recordkeeping, professional-gambler status, state tax treatment, multiple income sources) these examples leave out.