Break Even at the Casino in 2026 and You Still Owe Tax. The 90 Percent Rule, Read From the Statute
Section 70114 of the 2025 budget law rewrote one sentence of the tax code. For a player who wins $100,000 and loses $100,000 in 2026, that sentence creates $10,000 of taxable income out of a year in which no money was made. The new Form W-2G already prints the rule.
Published 2026-11-09.
The new Form W-2G, revised January 2026, tells the person holding it: "You can deduct 90% of your gambling losses as an itemized deduction, but the amount you deduct cannot be more than the amount of your winnings." The form that a slot attendant hands over at the machine now carries the rule that most players have not heard of.
The rule is Section 70114 of Public Law 119-21, the budget reconciliation act signed on July 4, 2025. It replaced the old text of Section 165(d) of the Internal Revenue Code, which had said since 1934 that "losses from wagering transactions shall be allowed only to the extent of the gains from such transactions," with a two-part limit. For taxable years beginning after December 31, 2025, the deduction "shall be equal to 90 percent of the amount of such losses during such taxable year" and "shall be allowed only to the extent of the gains from such transactions during such taxable year." This post is general information about that change, not tax advice; the arithmetic below is simple, but how it lands on your return depends on everything else on it.
For 2026 returns, gambling losses are deductible at 90 cents on the dollar, and still only up to the amount of winnings, and still only if you itemize. A break-even year is now a taxable year: win $100,000, lose $100,000, deduct $90,000, pay tax on $10,000 you never had. Professionals are hit harder because their business expenses now sit inside the same 90 percent cap. The repeal bill cleared the House Ways and Means Committee 38 to 5 in September 2026 and has not reached the floor. The IRS has already printed the rule on Form W-2G and proposed regulations to match.
What the sentence says, and what it used to say
Section 165(d) is short enough to quote in full as it now reads. Paragraph (1): "For purposes of losses from wagering transactions, the amount allowed as a deduction for any taxable year (A) shall be equal to 90 percent of the amount of such losses during such taxable year, and (B) shall be allowed only to the extent of the gains from such transactions during such taxable year." Paragraph (2): "For purposes of paragraph (1), the term 'losses from wagering transactions' includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction."
Two things changed. The first is the 90 percent haircut in (1)(A), which did not exist before. The second is that paragraph (2), which folds a gambler's expenses into the definition of losses, is now permanent. The 2017 tax law had added that expense rule only for 2018 through 2025, overriding a 2011 Tax Court decision, Mayo v. Commissioner, that had let a professional deduct travel and similar costs beyond winnings. It was due to expire. Instead of letting it lapse, the Senate drafters made it permanent and attached the haircut.
The cap in (1)(B) is the old rule and it still applies. You cannot deduct a net gambling loss in any year, you never could, and nothing about 2026 changes that.
The arithmetic for three kinds of player
| Player, tax year 2026 | Winnings | Losses | Deductible (90% of losses, capped at winnings) | Taxable gambling income |
|---|---|---|---|---|
| Break-even | $100,000 | $100,000 | $90,000 | $10,000 |
| Net loser | $20,000 | $30,000 | $20,000 (the cap binds first) | $0 |
| Net winner | $100,000 | $60,000 | $54,000 | $46,000, up from $40,000 |
The break-even player is the one the rule was written around, whether or not anyone intended it. In 2025 that year produced no taxable income. In 2026 it produces $10,000 of it, and at a 24 percent marginal rate that is $2,400 of tax on a year in which the player's bank balance did not move. The Tax Foundation's worked example scales the same thing up: a player who wagers $1 million and breaks even goes from a tax bill of $0 to one of $37,000.
The net loser is largely untouched, which is the counterintuitive part. If 90 percent of your losses is still more than your winnings, the winnings cap does all the work and the haircut does nothing. Most recreational players are net losers in most years, so most recreational players who itemize will see no change at all. The people who feel it are the ones who win a lot and lose almost as much: regular slot players with a stack of W-2Gs, video poker players running high volume, and anyone who treats gambling as a serious hobby rather than a weekend.
The net winner pays more too. A $40,000 profit becomes $46,000 of taxable income, because $6,000 of real losses stopped counting.
All of this sits on top of the rule that has always mattered more, which our loss deduction explainer is about: none of it is available unless you itemize deductions on Schedule A, and since 2018 most households do not. For a filer taking the standard deduction, the 2026 change is academic. Their losses were already worth nothing.
Why professionals are angrier than amateurs
A professional gambler reports on Schedule C and does not need to itemize, which sounds like an escape. It is the opposite. Because paragraph (2) treats business expenses as losses, a touring poker player's buy-ins, hotel rooms, flights and coaching all go into one bucket, and the whole bucket is cut to 90 percent before the winnings cap is applied.
The Tax Foundation ran Daniel Negreanu's publicly reported 2025 World Series of Poker results through both regimes: $1,478,240 cashed against $1,297,143 in buy-ins, a net of $181,097. Under the old rule, tax of about $67,000. Under the new one, the deductible buy-ins fall to $1,167,429, taxable income rises to roughly $311,000, and the tax bill becomes about $115,000 at a 37 percent rate, which is most of what he actually made. A professional with a thin margin and high volume can owe more in tax than they earned.
That is why the loudest opposition has come from poker players and sports bettors rather than from the casino industry, which has mostly lobbied on the W-2G threshold instead.
Where the repeal stands
Representative Dina Titus of Nevada introduced the FAIR BET Act, H.R. 4304, on July 7, 2025, three days after the law was signed. It would restore the full deduction. By February 2026 it had 23 bipartisan cosponsors and no hearing, and a discharge petition she filed on February 13 had one signature, her own. On the Senate side, Catherine Cortez Masto's FULL HOUSE Act, S. 2230, was read twice and referred to the Finance Committee on July 9, 2025, after a unanimous-consent request was blocked on the floor; it has not moved since.
The movement came on September 16, 2026, when the House Ways and Means Committee approved the fix as a provision of H.R. 10357, the Digital Asset Tax Certainty Act. Titus's office puts the committee vote at 38 to 5. On November 5 she wrote to Speaker Johnson and Majority Leader Scalise asking them to attach the fix to end-of-year must-pass legislation, and said the change "unfairly burdens professional gamblers and casual players alike." As of November 9, 2026, no floor vote has been scheduled, the Senate has not acted, and the 90 percent rule is the law for returns filed in early 2027.
The reason it exists at all is procedural. The Tax Foundation's account, which matches the sponsors' own, is that the Senate needed a provision with a measurable budget effect to satisfy the Byrd Rule, and the Joint Committee on Taxation scored the haircut at about $1.1 billion over eight years. For a bill that added trillions to deficits, that is a rounding error. For a break-even player, it is real money.
What the IRS has done with it, and what your records now have to carry
The IRS has implemented the change on the forms before it has updated the publications. Form W-2G (Rev. January 2026) carries the 90 percent sentence quoted above. Proposed regulations published in the Federal Register on April 17, 2026 (REG-113229-25) would rewrite Treasury Regulation 1.165-10 to say the same thing, with a rule for joint returns that applies the 90 percent to the spouses' combined losses against their combined gains; a public hearing was held on July 17, and we found no final rule as of this writing. Publication 529, which still carries the recordkeeping language, has not been revised since December 2020 and does not mention 90 percent. Tax Topic 419, updated September 24, 2026, does not either. If you are reading IRS guidance in early 2027, check its revision date before you trust its arithmetic.
The practical consequence is about records. Under the old rule, a player who lost more than they won could be casual about the loss side: any documented figure above winnings produced the same deduction. Under the new rule the loss figure itself matters, because 90 percent of it is what you get, and a loss figure you cannot substantiate is a deduction you do not have. Rev. Proc. 77-29 and Publication 529 ask for a contemporaneous diary with the date and type of wager, the establishment and its location, who was with you, and the amounts won or lost; our gambling log guide goes through exactly what that means at each game. A casino win/loss statement supports the diary and, as our win/loss statement post explains, does not replace it.
One more thing changed in the same law, and it cuts the other way for slot players. The W-2G reporting threshold for slots and bingo rose from $1,200 to $2,000 on January 1, 2026, so fewer wins get reported to the IRS by the casino. That is our W-2G threshold post. Fewer forms does not mean less taxable income; every win is reportable whether or not a form exists, and the players most affected by the 90 percent rule are precisely the ones with enough volume that the forms were never the whole story.
State returns are a separate question. Several states, Connecticut among them, allow no gambling loss deduction at all, and Michigan's deduction piggybacks on the federal Section 165(d) figure, so the federal haircut flows through. A state-by-state check is worth a tax professional's hour if you play seriously.
If the question of what gambling is costing you has stopped being a tax question, 1-800-GAMBLER is free and confidential.
Topics
- tax
- money
- irs
- gambling-law
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