Historically, legal gambling in the United States required being physically present in a casino or other gaming establishment in one of few states or tribal reservations that permitted it. Then the internet brought with it the advent of offshore online casinos; however, they were (and still are) technically illegal to access from US soil.
The landscape radically changed in 2018, when the Supreme Court struck down a nationwide ban on state-sanctioned sports betting. States raced to legalize online sports betting and grab their share of the resulting tax revenue. Sports betting is now a $17 billion industry and is legal in 39 states.
Additionally, prediction markets have emerged as a legal grey area which offer individuals the ability to place money on the outcome of virtually any event: sports, politics, and even the weather. The activity closely resembles gambling, but prediction market operators argue they are offering financial contracts. Practitioners are awaiting further guidance as to whether predication market activity should be treated as gambling for tax purposes.
Now that are betting more than ever before, it is important to understand how gambling winnings and losses are treated by the IRS.
How to Report Gambling Winnings and Losses to the IRS
IRS rules regarding gambling income and losses are particularly unfavorable to taxpayers. Wins and losses cannot be netted. Rather, the IRS requires tracking gambling activity on a “per session” basis. A win or loss must be recorded for each session.
Example 1
Individual A makes 3 trips to the casino during 2025. Assume that each trip is a “gambling session”. During each of the first two visits, A loses $60. During the third trip, A wins $110. A’s winnings for the year are $110. His losses for the year are $120.
Taxpayers must report gross gambling winnings as other income on Schedule 1 of Form 1040. Gross losses can only be claimed as an itemized deduction on Schedule A. Taxpayers who don’t itemize end up in a bad position – they must pay tax on gambling winnings but are not allowed to take a deduction for any gambling losses.
Example 2
Assume that, in addition to the facts from Example 1, A has no itemized deductions other than gambling losses. A reports income of $110 on Schedule 1 and takes the standard deduction. A is not allowed to claim any of his gambling losses. A’s $120 loss cannot be carried forward and is permanently disallowed.
2026 Gambling Loss Deduction Changes: The One Big Beautiful Bill’s New 90% Rule
In 2025 and earlier years, gamblers could claim losses up to their gambling winnings. In other words, gambling losses could wipe out gambling winnings, assuming the taxpayer itemized, but any losses in excess of winnings were forfeited.
Example 3 – 2025 Tax Year and Earlier
Assume the same facts as Example 2, except A is now able itemize. A reports income of $110 on Schedule 1. A is allowed to claim $110 of losses as an itemized deduction, since losses cannot exceed income. The excess $10 of losses are permanently disallowed.
The One Big Beautiful Bill Act (OBBB, or H.R. 1) created an additional restriction on gambling losses. Beginning with tax year 2026, taxpayers can only claim up to 90% of losses against winnings as an itemized deduction.
Example 4 – 2026 Tax Year and Forward
Assume the same facts as Example 3, except the gambling activity occurs in 2026. A must report $110 on Schedule 1 as other income but can only take $108 as an itemized deduction ($120 * .9). A is therefore taxed on $2 of gambling income, even though he had a net loss. The $12 in excess losses cannot be carried forward and are permanently disallowed.
Gambling Tax Tips: What Every Bettor Should Do Now
Laws surrounding proper reporting of gambling income and losses are complex and rapidly changing. For those that choose to gamble, it is vitally important to maintain good records. At a minimum, gamblers should do the following:
- Keep detailed logs of activity for each gambling “session”
- Consider the additional tax burden of gambling if you are not able to claim losses as an itemized deduction
- Stay in touch with your tax advisor for updated guidance throughout the year