Sports Betting Taxes in 2026: What Changed and What It Means for You

What changed: the 90% gambling loss cap

The One Big Beautiful Bill Act, signed into law on July 4, 2025, includes Section 70114, which amends Internal Revenue Code Section 165(d) to cap gambling loss deductions at 90% of actual losses, effective for taxable years beginning after December 31, 2025.

Previously, you could deduct 100% of your gambling losses up to the amount of your winnings (and only if you itemized deductions). That rule still applied to your 2025 taxes.

Starting with your 2026 taxes (filed in 2027), the math changes. Now, 10% of every dollar you lose is permanently non-deductible. This creates what tax professionals call "phantom income" — taxable income that doesn't represent actual profit.

The provision was inserted late in the legislative process with minimal public debate, as part of a massive tax package primarily focused on income tax reductions and standard deduction increases. The Congressional Budget Office estimates it will generate approximately $1.1 billion in revenue over ten years.

Old rules vs new rules

How it hits your wallet: worked examples

All examples assume the bettor itemizes deductions and is in the 24% federal tax bracket. State taxes are not included.

W-2G changes: the $2,000 threshold

Not everything in the Big Beautiful Bill is bad for bettors. The W-2G reporting threshold — the amount at which a sportsbook or casino must report your winnings to the IRS — was raised from $1,200 to $2,000. This is the first increase in nearly 50 years.

For sports bettors specifically, the new law explicitly includes sports wagering in W-2G reporting for the first time. A sportsbook must issue you a W-2G when your winnings are $2,000 or more and the payout is at least 300 times the amount wagered.

Starting in 2027, the $2,000 threshold will automatically adjust for inflation — another first. This prevents the threshold from becoming outdated the way the old $1,200 level did.

Important: Not receiving a W-2G doesn't make your winnings non-taxable. All gambling winnings must be reported on your tax return regardless of whether you receive a W-2G form. The federal withholding threshold remains at $5,000.

State-by-state considerations

Federal taxes are only part of the picture. State tax treatment of gambling winnings varies dramatically and can compound the phantom income problem.

No state income tax: If you're in Nevada, Florida, Texas, Tennessee, New Hampshire, Wyoming, or Washington, you only face federal taxes on gambling winnings. No state-level phantom income.

States that decouple from federal rules: Some states like North Carolina, Connecticut, and Illinois disallow gambling loss deductions entirely at the state level. A North Carolina resident with $100,000 in winnings and $100,000 in losses would pay federal tax on $10,000 of phantom income plus state tax on the full $100,000 with zero deduction.

States that track federal treatment: Many states follow federal rules. In these states, the 90% cap applies at both the federal and state level, though state tax rates are typically lower.

Repeal efforts: FAIR BET Act & FULL HOUSE Act

The backlash to the 90% cap has been swift and bipartisan. Two bills have been introduced to restore the full gambling loss deduction:

• FAIR BET Act (Fair Accounting for Income Realized from Betting Earnings Taxation) — Introduced July 7, 2025, by Rep. Dina Titus (D-NV). Would amend Section 165(d) to restore the 90% cap back to 100%. Has 23+ bipartisan co-sponsors.
• FULL HOUSE Act (Facilitating Useful Loss Limitations to Help Our Unique Service Economy) — Introduced by Rep. Max Miller (R-OH) and Rep. Steven Horsford (D-NV). Contains identical provisions to restore 100% deduction.

Despite bipartisan support, neither bill has passed. The main obstacle is the "floodgates" concern — congressional leadership worries that opening the Big Beautiful Bill for amendment on gambling could invite challenges to other provisions. The $1.1 billion revenue score also means any repeal needs offsetting revenue increases elsewhere.

We'll update this section as these bills progress. If you want to take action, contact your representative and let them know how this provision affects you.

What you can do right now

1. 1. Track every bet. Wins, losses, dates, amounts, and which sportsbook. The IRS requires records to substantiate gambling loss deductions. Your bet history is your defense in an audit.
2. 2. Understand the session method. The IRS allows netting wins and losses within a single gambling session. This reduces your gross reported income, which can reduce your overall tax exposure. A "session" is generally a continuous period of activity — one day of slot play, or potentially a single sports betting session.
3. 3. Evaluate whether to itemize. If you gamble regularly and have other itemized deductions (mortgage interest, state taxes, charitable donations), your total may exceed the standard deduction. That's the only way to claim gambling losses.
4. 4. Consider your state. If you're in a state that doesn't allow gambling loss deductions at all, the combined tax impact is significantly worse. Residents of no-income-tax states have a material advantage.
5. 5. Consult a tax professional. Especially if you're a high-volume bettor or considering claiming professional gambler status. The interaction between the 90% cap, the TCJA business expense rules, and state taxes is complex enough to warrant professional guidance.
6. 6. Stay informed. Repeal efforts are active. The rules may change. Bookmark this page — we'll keep it updated.

Frequently asked questions