Can You Deduct Gambling Losses? The 90% Cap and Itemizing Rules

You can deduct gambling losses on your federal return, but only up to the amount of gambling winnings you reported that same year, and only if you itemize. Starting with the 2026 tax year, a further limit applies: only 90 percent of your losses count toward the deduction.¹ Every dollar you win is taxable whether or not the casino sends you a form, so the deduction is what keeps the tax bill on winnings from ballooning past what you actually took home.²

Losses Can Only Offset Winnings

The core rule is simple. Your deduction for gambling losses cannot exceed your gambling winnings for the year. Win $5,000 and lose $12,000, and your deduction stops at $5,000. The other $7,000 is gone for tax purposes. You cannot carry the unused portion into next year, and you cannot apply it to a prior year.¹

That means gambling losses never shelter your wages, investment income, or anything else. The deduction exists strictly to reduce tax on the winnings themselves. Even in a losing year, you owe tax on every dollar won unless the loss deduction cancels it out, and the deduction cannot push your gambling income below zero.

The 90 Percent Rule Starting in 2026

For tax years beginning after December 31, 2025, the One Big Beautiful Bill Act amended IRC Section 165(d) so only 90 percent of your gambling losses are eligible for the deduction, before the winnings cap is applied.¹ The change is permanent, and it applies to everyone — casual players and professionals alike.

The math bites hardest when your losses are close to your winnings. Suppose you break even in 2026: $10,000 in winnings, $10,000 in losses. Under the old rule the full $10,000 offset your winnings and you owed nothing on gambling. Under the new rule only $9,000 of the loss qualifies, so you owe income tax on $1,000 of gambling income despite not having come out ahead.

Another example: you won $10,000 and lost $8,000. Your deductible loss is now $7,200 rather than $8,000, leaving $2,800 in taxable gambling income instead of $2,000. When losses far exceed winnings, the winnings cap does most of the work and the 90 percent haircut has less practical effect, because the cap kicks in first.

You Have to Itemize

Gambling winnings go on Schedule 1 of Form 1040 as additional income. The offsetting losses go on Schedule A under “Other Itemized Deductions,” which means you only get the benefit if you itemize.² Gambling losses are not subject to the 2-percent-of-AGI floor that limits some other miscellaneous deductions.³

Itemizing only pays off when your total itemized deductions exceed the standard deduction. For 2026 the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.⁴ If your gambling losses plus your mortgage interest, state and local taxes, and charitable donations don’t clear that threshold, the standard deduction is the better move and the gambling loss deduction gives you nothing.

For many casual gamblers, that is the end of the story. Someone who won $3,000 at a casino and lost $3,000 would need at least $13,100 in other itemized deductions as a single filer before the loss deduction starts saving anything. Take the standard deduction and you pay tax on the full amount of your winnings with no offset. This is one of the most common surprises in gambling taxation.

Records the IRS Expects

The burden of proving losses is entirely on you. The IRS expects a contemporaneous diary or log kept as you go, not a reconstruction at tax time. Each entry should show the date and type of gambling, the name and location of the establishment, the amounts won or lost, and the names of anyone with you.⁵

The diary alone is not enough. It needs backup:

W-2G forms for winnings above the reporting threshold
Wagering tickets and receipts, including losing slips from tracks, lottery tickets, and sportsbook confirmations
Casino player card statements and annual win/loss summaries, which the IRS treats as supporting evidence rather than a substitute for your own log
Bank and credit card statements showing ATM withdrawals at gambling venues or chip purchases

Without documentation, the IRS will disallow the entire loss deduction on audit. Auditors in this area recognize the difference between real contemporaneous records and year-end estimates. A running log on your phone takes seconds per session and can save thousands if you are ever asked to prove your numbers.²

Reporting Winnings Even Without a W-2G

Casinos, sportsbooks, and other operators report certain winnings on Form W-2G. Starting with payments made in 2026, the minimum threshold for issuing a W-2G is $2,000, with annual inflation adjustments after that.⁶ This replaces the prior $1,200 threshold for slot machines and bingo and the $1,500 threshold for keno.

Separately, the operator must withhold federal tax at 24 percent when winnings from sweepstakes, wagering pools, lotteries, or sports betting exceed $5,000 after subtracting the wager. That withholding threshold has not changed.⁷

The higher W-2G threshold does not change your reporting obligation. You owe tax on all gambling winnings whether or not a form is issued. A $1,500 slot hit in 2026 will not generate a W-2G, but it still belongs on Schedule 1.²

Professional Gamblers Follow a Different Path

If gambling is your trade or business rather than a hobby, you report winnings and losses on Schedule C instead of splitting them between Schedule 1 and Schedule A. That removes the itemizing requirement, which is a real advantage. It also triggers self-employment tax on your net gambling income, which casual gamblers don’t pay.

The IRS scrutinizes professional status closely, applying the nine factors in Treasury Regulation 1.183-2(b) to decide whether your gambling is a genuine profit-seeking activity. Businesslike recordkeeping, the time and effort you devote, your history of results, and whether you rely on gambling for your livelihood all weigh in the analysis.⁸ Approaching gambling the way a recreational player would makes the argument hard to win.

The 2026 changes also affect pros. The One Big Beautiful Bill Act expanded “losses from wagering transactions” to include any deduction incurred in carrying on a wagering transaction, so business expenses like travel and software subscriptions get bundled with your wagering losses and run through the same 90 percent and winnings-cap tests.¹ For a pro with $80,000 in winnings, $60,000 in wagering losses, and $15,000 in business costs, total wagering-related losses are $75,000. Ninety percent is $67,500, which is under the $80,000 winnings cap, so $67,500 is deductible and the remaining $7,500 is gone.

State Rules Don’t Always Match

Federal deduction rules don’t automatically carry over to your state return. Roughly a dozen states either prohibit gambling loss deductions entirely or add restrictions of their own. In those states you can owe state income tax on the full amount of your winnings even after offsetting every dollar at the federal level. States with no income tax avoid the problem, but if your state does tax income, check its treatment of gambling losses before assuming your federal math applies.

1
Office of the Law Revision Counsel. 26 US Code 165 – Losses
2
Internal Revenue Service. Topic No. 419 Gambling Income and Losses
3
Internal Revenue Service. Publication 529 – Miscellaneous Deductions
4
Internal Revenue Service. Rev. Proc. 2025-32
5
Internal Revenue Service. Diary or Similar Record
6
Internal Revenue Service. Instructions for Forms W-2G and 5754 (01/2026)
7
Internal Revenue Service. Instructions for Forms W-2G and 5754 (Rev. January 2026)
8
Internal Revenue Service. Activities Not Engaged in for Profit Audit Technique Guide