As of December 18, 2025, the biggestknown federal change affecting how gambling winnings from sportsbooks are taxed in 2026 is not a new reporting form or a new withholding rate—it’s a new limit on how much you can deduct for gambling losses.
Below is a detailed, practical, example-heavy walk-through of what changes (and what doesn’t) for tax year 2026 compared with tax year 2025, focused specifically on gambling winnings, withholding, reporting, and loss deductions.
1) The baseline rules (true in 2025 and still true in 2026)
1.1 Gambling winnings are taxable income
The IRS treats gambling winnings as taxable income (this includes casinos, sports betting, poker tournaments, lotteries, raffles, etc.). You generally report winnings on your return even if you didn’t get a tax form from the IRS.
1.2 Losses are deductible only with records—and (historically) only up to winnings
Historically (and in 2025), recreational gamblers can deduct gambling losses only if they itemize deductions, and only up to the amount of gambling winnings (you can’t create a net gambling loss to reduce other income). You must keep records to support both winnings and losses.
1.3 Forms and reporting triggers (W-2G) are mostly about information reporting
Certain wins trigger Form W-2G reporting and/or federal withholding, but you still owe tax on all winnings whether a W-2G is issued or not. The W-2G thresholds and withholding triggers are laid out in the IRS’s W-2G instructions.
2) What does not materially change from 2025 to 2026 (for most players)
For most gamblers, these practical mechanics remain the same:
2.1 W-2G “big win” thresholds are still the core framework
The common thresholds (e.g., certain slot/bingo, poker tournament, and “$600 and 300x” style triggers for some wager types) are part of the W-2G rules and remain the reference point for books/casinos issuing tax forms.
2.2 Federal withholding structure is still driven by W-2G rules
Federal withholding on certain gambling payouts (and related backup withholding rules) continues to be governed by the W-2G instructions and IRS rules in place.
Bottom line: Most “how the casino handles the paperwork” behavior doesn’t dramatically change in 2026. The big change is what happens on your return when you try to offset winnings with losses.
3) The big 2026 change: the new 90% cap on gambling-loss deductions
3.1 What the law says (plain English)
Starting in tax year 2026, federal law limits the deduction for losses from wagering transactions to 90% of those losses.
The relevant statutory text (as shown in the bill text) states the deduction for losses from wagering transactions “shall be allowed only to the extent of 90 percent of the amount of such losses.”
3.2 Why this matters: “break-even gambling” becomes taxable
Under the older model most people understand, if you had $10,000 of winnings and $10,000 of documented losses, your net gambling result was effectively $0 taxable gambling income (assuming you itemized and had the records).
Under the 2026 90% rule, you can only deduct $9,000 of those $10,000 losses. That leaves $1,000 exposed to tax even though you broke even in real life.
This is a major conceptual shift: the IRS is effectively taxing a slice of gross gambling activity rather than true net results.
4) 2025 vs 2026: what changes on the rate/standard deduction side (affects how much you pay)
Even if your gambling rules stayed identical (they don’t), the tax cost of winnings can change year to year due to inflation adjustments.
The IRS released tax year 2026 inflation adjustments (and included “One, Big, Beautiful Bill” amendments), giving these headline figures:
- Standard deduction (TY 2025 under OBBB):
- Single / MFS: $15,750
- MFJ: $31,500
- HOH: $23,625 IRS
- Standard deduction (TY 2026 under OBBB):
- Single / MFS: $16,100
- MFJ: $32,200
- HOH: $24,150 IRS
The IRS also lists the 2026 bracket thresholds (top rate remains 37% with updated income cutoffs).
Why it matters for gamblers: if you’re near a bracket boundary, a big win (or a “taxable even when break-even” result under the 90% cap) can push some income into a higher marginal range. Your 2026 bracket thresholds are not identical to 2025.
5) Detailed examples: how 2026 differs from 2025
Example A — Recreational gambler breaks even (the headline impact case)
Facts (both years):
- Winnings: $10,000
- Losses (documented): $10,000
Tax year 2025 (classic understanding)
- Report winnings as income: $10,000
- Deduct losses up to winnings (if itemizing): $10,000
- Net gambling income: $0
Tax year 2026 (new 90% cap)
- Report winnings as income: $10,000
- Deductible losses limited to 90% of $10,000 = $9,000
- Net taxable gambling income: $1,000
What changed: You can now owe federal income tax despite being break-even.
Example B — Recreational gambler loses money overall
Facts:
- Winnings: $5,000
- Losses (documented): $8,000
Tax year 2025
- Income: $5,000
- Loss deduction limited to winnings: $5,000 (can’t deduct the extra $3,000 against wages)
- Net taxable gambling income: $0
Tax year 2026
- Income: $5,000
- Losses are still limited by multiple concepts: you can’t just wipe out other income with gambling losses, and now the 90% cap reduces what’s usable.
- 90% of losses = $7,200 — but you only have $5,000 of winnings to offset in the first place, so:
- Net taxable gambling income: $0
Practical take: If you’re a net-loser recreationally, you usually still won’t create taxable gambling income from nowhere—but the rule bites hardest when you’re near break-even or modestly winning.
Example C — Recreational gambler is up money
Facts:
- Winnings: $50,000
- Losses (documented): $30,000
Tax year 2025
- Taxable gambling income: $50,000 − $30,000 = $20,000
Tax year 2026
- Deductible losses capped to 90%: 90% × $30,000 = $27,000
- Taxable gambling income: $50,000 − $27,000 = $23,000
Difference: $3,000 more taxable income versus 2025 on the same real-world results.
Example D — Sports bettor: lots of volume, thin edge (the “sharp” pain point)
This is where 2026 can get brutal.
Facts:
- Winnings (gross payouts / net wins counted as winnings for tax reporting purposes): $200,000
- Losses: $195,000
- Real-world profit: $5,000
Tax year 2025
- Taxable gambling income: $200,000 − $195,000 = $5,000
Tax year 2026
- Deductible losses: 90% × $195,000 = $175,500
- Taxable gambling income: $200,000 − $175,500 = $24,500
Meaning: The IRS is now taxing you as if you made $24,500, even though you only profited $5,000.
This is the single biggest reason 2026 is a serious strategy/recordkeeping year for high-volume bettors.
Example E — Withholding and “surprise” tax due
Withholding is not the same as your final tax bill.
Facts:
- You hit a payout that triggers withholding/reporting under W-2G rules. IRS
- Federal tax withheld at payout: assume $2,400 withheld (illustrative)
- Your actual marginal bracket and final liability might be higher or lower depending on total income, deductions, and whether 2026’s 90% loss cap makes more of your gambling taxable.
Lesson: In 2026, even disciplined players who “always break even” can face true tax due because their loss deduction won’t fully offset winnings anymore.
6) Practical compliance implications for 2026 (what to do differently)
6.1 Recordkeeping becomes more valuable—not optional
Because you may be taxed even when break-even, you’ll want clean, defensible records to:
- Substantiate losses (so you can at least claim the 90%),
- Reconcile W-2G amounts with your own logs, and
- Avoid overstating income or understating deductible losses.
The IRS has long emphasized gambling recordkeeping and the general rule that winnings are taxable and losses must be substantiated.
6.2 High-volume bettors should model tax as a “cost of volume”
If you’re betting at scale (props, derivatives, live betting, arbs), your 2026 expected value may need a new line item:
“Tax friction from 90% loss cap.”
6.3 Plan for estimated taxes (or higher withholding) if you’re active
If you have frequent wins and intermittent losses, don’t rely on “it’ll net out.” In 2026, it may not net out for tax purposes.
6.4 Itemizing vs standard deduction: the strategic tension intensifies
In 2025 and 2026, the standard deduction amounts are large (and grow from 2025 → 2026).
If you don’t itemize, you generally don’t get to deduct gambling losses the way most people assume.
So, a common 2026 scenario becomes:
- Large standard deduction makes itemizing unattractive
- But itemizing is the gateway to claiming gambling losses (for many recreational filers)
That tradeoff existed before—but the 90% cap raises the stakes of getting it right.
7) The short “2025 → 2026” change list
Biggest direct gambling change
- NEW (2026): Gambling/wagering losses deductible only up to 90% of losses (law text).
Big indirect changes (affect total tax)
- Inflation-adjusted standard deduction increases (2025 → 2026) and bracket thresholds shift.
Largely unchanged core mechanics
- Winnings are taxable; recordkeeping required; W-2G framework still governs many reporting/withholding triggers.
8) What to watch next (open items as we enter 2026 filing season)
Even when the statute is clear, the IRS often issues practical guidance on:
- How exactly the 90% limitation is computed across sessions/types of wagers,
- Interactions with “wagering transaction” definitions, and
- How the limitation applies for different gambler profiles.
So the direction is clear for 2026; the implementation details are where you’ll want to stay current.
