Federal Gambling Loss Deduction Cap Takes Effect January 1: What Bettors Need to Know

The “One Big Beautiful Bill Act” provision creates “phantom income” taxation, threatens professional poker careers, and may drive players to offshore crypto platforms

A controversial provision buried deep within the Republican tax overhaul signed by President Donald Trump in July 2025 officially takes effect today, fundamentally altering how millions of American gamblers will be taxed on their winnings and losses.

Starting January 1, 2026, Section 70114 of the One Big Beautiful Bill Act (OBBBA) limits gambling loss deductions to 90 percent of winnings—down from the longstanding 100 percent that allowed bettors to offset their gains with corresponding losses. The change, added by the Senate Finance Committee during final negotiations, is projected to generate $1.1 billion in additional federal revenue over the next decade, according to the Joint Committee on Taxation.

But critics say the measure creates an absurd scenario where break-even gamblers will owe taxes on money they never actually profited—a phenomenon the gaming industry has dubbed “phantom income.”

The Phantom Income Problem

The mechanics are straightforward but punishing: A player who wins $100,000 and loses $100,000 during a tax year could previously deduct the full amount of losses, resulting in zero taxable gambling income. Under the new rules, that same player can only deduct $90,000, leaving $10,000 subject to federal income tax despite earning nothing.

“People shouldn’t pay taxes on phantom income. There’s a fundamental fairness issue here.”
— Bill Miller, CEO, American Gaming Association

The AGA has called the provision “uniquely penalizing” compared to other industries, where businesses can fully deduct losses against gains.

For high-volume bettors, the numbers become staggering. A professional poker player with $500,000 in winnings (use our bankroll calculator to plan) and $500,000 in losses would face taxes on $50,000 of phantom income—potentially a $15,000 to $20,000 tax bill on a year where they didn’t actually profit a single dollar.

Professional Poker in Crisis

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Perhaps no group faces more acute consequences than professional poker players, who operate in a high-variance environment (see our poker guide for fundamentals) where break-even years—or years with modest losses—are common even among elite competitors.

Poker Hall of Famer Erik Seidel, who holds 10 World Series of Poker bracelets and over $40 million in career tournament earnings, told the Nevada Independent that the tax change is forcing him toward the exit.

“Next year, I am kind of forced into retirement. Everyone who I’ve spoken to plans on either cutting back or stopping.”
— Erik Seidel, Poker Hall of Famer (10 WSOP bracelets)

In a separate interview with PokerNews, Seidel elaborated on his plans: “I expect that I’ll be playing much smaller if I play. I might play some WPT $3ks or something, which I generally don’t play except for in Florida.”

“I love the game of poker. I don’t want to stop playing. And so it is a bit frustrating to be forced to not play these events. And there are some really cool events coming up that I just won’t be able to play.”
— Erik Seidel

Seidel also noted the disproportionate impact on younger professionals: “It’s even worse for the younger players. These are people who put in an incredible amount of effort and hours learning.”

Phil Hellmuth, another poker icon, has dubbed the provision the “Poker Players Death Tax” and publicly urged Senator Ted Cruz to work toward its repeal.

“A few high rollers I’ve spoken to said they won’t play much at all in 2026, and American players in high rollers could become scarce. Some American online grinders I know plan to completely shut down their play on American online sites, myself included.”
— Tony Dunst, Professional Poker Player

Casino Industry Already Feeling the Squeeze

The impact extends far beyond poker tables. Derek Stevens, CEO of Circa Casino Resorts in Las Vegas, told reporters that his properties are already experiencing reduced bookings for 2026.

“This could be fixed next year. The reality is that it needs to be done now. It’s already impacting wagering that goes into 2026.”
— Derek Stevens, CEO, Circa Casino Resorts

The timing couldn’t be worse for Las Vegas, which relies heavily on the World Series of Poker and other major gambling events for summer tourism revenue. Industry insiders fear that professional players—who typically bring six-figure tournament buy-ins and significant side action—may dramatically reduce their participation.

Sportsbooks are also bracing for reduced activity, particularly around major events like the Super Bowl and March Madness. Our parlay betting guide explains these wager types, as high-volume bettors recalculate their risk exposure under the new tax regime.

Bipartisan Legislative Push to Reverse the Change

The provision has generated rare bipartisan opposition, with lawmakers from both parties scrambling to undo the damage before tax filing season.

House Ways and Means Committee Chairman Jason Smith (R-MO) has labeled the provision a “mistake” and pledged to reverse it, stating: “I believe there is a bipartisan path forward to restoring full deductibility of gambling losses.”

Titus attempted to attach the FAIR BET Act to the 2026 National Defense Authorization Act, a legislative strategy that would have significantly boosted its chances of passage, but the effort stalled.

“We got a million responses to our tweet…more than I’ve ever gotten.”
— Rep. Dina Titus (D-NV)

Representative Mark Amodei (R-NV) has indicated that a fix may be included in January appropriations packages: “We have been assured that when we wrap up this stuff in ’26 appropriations, that fix will be in there.”

AGA’s Miller remains cautiously optimistic: “I believe that we’re going to get it done” early in 2026, though he acknowledged that Congressional gridlock poses risks to the timeline.

The Crypto Gambling Wild Card

While lawmakers debate fixes to the deduction cap, a more troubling dynamic may be emerging: the potential migration of American bettors to unregulated offshore platforms, including cryptocurrency casinos that operate outside U.S. jurisdiction.

Industry analysts warn that the widening gap between regulated and unregulated gambling tax treatment creates powerful incentives for players to move underground.

The change unfairly burdens professional gamblers and casual players alike and will inevitably drive players toward offshore and unregulated markets where consumer protections are nonexistent, thereby undermining responsible gaming efforts nationwide.

Professional bettors have estimated that sharp gamblers already split their action roughly 60 percent offshore, 10 percent on prediction markets, and 30 percent on legal books—with offshore activity rarely reported accurately for tax purposes.

Unregulated offshore betting is already a $200 billion global industry. The new tax treatment may accelerate the flow of American dollars to these platforms, which increasingly operate using cryptocurrencies that offer anonymity and are difficult for tax authorities to track. For those who do report, our crypto tax calculator can help estimate obligations.

However, enforcement remains challenging. While the IRS has forced major exchanges like Coinbase and Kraken to share customer data, and has partnered with blockchain analytics firms like Chainalysis to trace transactions, the sheer volume of offshore crypto gambling activity—combined with the use of privacy coins and decentralized platforms—makes comprehensive tracking difficult.

Starting in 2026, all centralized exchanges must issue Form 1099-DA for crypto transactions, and the OECD’s Crypto-Asset Reporting Framework will facilitate international data sharing beginning in 2027. But these measures may arrive too late to capture the wave of activity potentially shifting offshore in response to the new tax rules.

What’s Next

For gamblers, the immediate reality is grim. The law takes effect today, meaning any gambling activity from this point forward falls under the new 90 percent deduction cap.

Those hoping for a quick legislative fix face an uncertain timeline. Industry sources suggest that any reversal needs to occur no later than April 2027 to affect 2026 tax returns. A fix passed after that deadline would still apply to future years but would leave 2026 gambling activity subject to phantom income taxation.

“The Republicans’ tax on gamblers is ridiculous and will be bad for Nevada’s economy.”
— Spokesperson for Senator Cortez Masto

As Representative Titus put it: “We’ll believe it when it’s signed.”

Until then, America’s gamblers—from recreational scratch-off buyers to professional poker legends—face the prospect of paying taxes on money they never actually won.

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Sources

• H.R.1 – One Big Beautiful Bill Act (Public Law 119-21) — U.S. Congress
• H.R.4304 – FAIR BET Act — U.S. Congress
• S.2230 – FULL HOUSE Act — U.S. Congress
• H.R.4630 – WAGER Act of 2025 — U.S. Congress
• JCX-35-25: Revenue Estimates for Tax Provisions — Joint Committee on Taxation
• Topic No. 419: Gambling Income and Losses — Internal Revenue Service
• Nevada Casinos, Lawmakers Eager to Reverse Gambling Deduction Change — The Nevada Independent
• Erik Seidel Interview on Gambling Tax Changes — PokerNews

If you or someone you know has a gambling problem, call the National Council on Problem Gambling helpline at 1-800-522-4700.