How does the Gambling Tax work?

The clearest way to understand the real-world impact is through specific numerical examples across different gambling outcomes.

 

Scenario One: You break even.

You win $100,000 gambling in 2026. You lose $100,000 gambling in 2026.

 

Under the old rule: Your $100,000 in losses fully offset your $100,000 in winnings. Taxable gambling income: zero. Tax owed on gambling: zero.

Under the new 90% rule: Your losses are first capped at your winnings, which gives you $100,000 of deductible losses. That amount is then reduced to 90%, which means your actual deduction is $90,000. Your reported gambling income is $100,000. Your deductible gambling losses are $90,000. Taxable gambling income: $10,000. At a 24% federal tax rate, you owe $2,400 in federal tax on money you never actually made.

 

Scenario Two: You lose more than you win.

You win $60,000 gambling in 2026. You lose $80,000 gambling in 2026.

Under the old rule: Your losses are first capped at your winnings- so you can deduct $60,000 of your $80,000 in losses. The remaining $20,000 in losses is disallowed and not carried forward. Taxable gambling income: zero.

Under the new 90% rule: Your losses are capped at $60,000 (your total winnings). That $60,000 is then reduced to 90%, leaving a deduction of $54,000. Taxable gambling income: $6,000. Tax owed at 24%: $1,440- despite losing a net $20,000 on gambling for the year.

 

Scenario Three: You win more than you lose.

You win $200,000 gambling in 2026. You lose $150,000 gambling in 2026.

Under the old rule: You deduct $150,000 in losses against $200,000 in winnings. Taxable gambling income: $50,000.

Under the new 90% rule: Your $150,000 in losses is less than your winnings, so the first cap does not reduce them. But the 90% rule applies: you can deduct only $135,000. Taxable gambling income: $65,000. The 90% rule increased your tax bill on the same activity by the equivalent of $15,000 in extra taxable income. At 24%, that is $3,600 in additional federal tax.

 

Scenario Four: A professional poker player at the World Series.

A professional player enters multiple WSOP events in 2026. Their tournament winnings total $300,000. Their buy-ins, travel, and related expenses total $280,000.

Under the old rule (for casual gamblers): Deduct $280,000 in losses against $300,000 in winnings. Taxable income: $20,000.

Under the new 90% rule: Deduct only $252,000 (90% of $280,000). Taxable income: $48,000. The 90% rule more than doubled the taxable income figure despite the player's actual net profit being the same $20,000.

The Tax Foundation calculated a more extreme version of this scenario: a professional who wins $250,000 and loses $250,000- breaking even in real terms- would owe approximately $37,000 in federal taxes on phantom income under the new rule. A player who nets $50,000 in real winnings could end up with a tax liability that exceeds their actual take-home pay, creating what the Tax Foundation described as an effective tax rate of over 100 percent on real income.