The Budget that Created the Phantom Income in Gambling

Understanding why Congress created this rule helps gamblers assess whether it is likely to be reversed and plan accordingly. The provision was not originally proposed by the Trump administration or by gambling-focused legislators. It was inserted into the One Big Beautiful Bill Act in the Senate, driven by procedural requirements under the Senate's Byrd Rule rather than by policy conviction about gambling taxation.

The Byrd Rule requires that every provision in a budget reconciliation bill- the legislative vehicle used to pass the OBBBA- must have a significant and direct budgetary impact. In 2017, the Tax Cuts and Jobs Act had temporarily prohibited professional gamblers from deducting non-wagering business expenses such as hotel costs and travel against their gambling winnings. That 2017 provision was scheduled to expire at the end of 2025, meaning that when Senate tax writers were drafting the OBBBA in 2025, they needed to amend Section 165 of the tax code in a way that met the Byrd Rule's revenue impact requirement. Reducing the deductibility threshold from 100% to 90% accomplished this- the Joint Committee on Taxation projected the 90% cap would generate approximately $1.1 billion in additional federal revenue over ten years.

The provision was inserted late in the legislative process, passed quickly, and became law without substantial public debate about its effects on recreational and professional gamblers. The backlash was immediate. Nevada lawmakers, casino industry groups, professional gambling organisations, and bipartisan members of Congress all raised objections within days of the law's signing.

Representative Dina Titus of Nevada introduced the FAIR BET Act- formally the Fair Accounting for Income Realized from Betting Earnings Taxation Act- on July 7, 2025, just three days after the OBBBA was signed. The bill would restore the 100% loss deduction while maintaining the beneficial W-2G threshold increases. Senator Catherine Cortez Masto of Nevada introduced the companion FULL HOUSE Act in the Senate. A third bill, the WAGER Act, was also introduced. All three seek the same outcome: repeal of the 90% cap.

None of the repeal bills had advanced through committee as of May 2026. Senate Republicans blocked an early repeal attempt in July 2025 when Senator Todd Young of Indiana objected to a unanimous consent request to pass the reversal. President Trump made ambiguous public comments in December 2025 about potentially eliminating taxes on gambling winnings entirely- a far more dramatic change that has not been proposed in formal legislation- but took no specific action on the 90% deduction cap.

As of the date of this article, the 90% rule is the law in effect for all gambling activity in calendar year 2026. Gamblers who are counting on a repeal before they file their 2026 returns in April 2027 are taking a significant risk. The prudent approach is to plan as if the 90% rule will remain in force through the 2026 tax year and treat any future legislative change as a potential benefit rather than a guaranteed outcome.