Broke Even Gambling? You Might Still Owe the IRS.

If you gamble, there is a new gambling tax law that could cost you money, even if you did not come out ahead. Starting January 1, 2026, the federal government limits how much of your gambling losses you can deduct. The short version: if you won $3,000 and lost $3,000 at the casino this year, you could owe taxes on $300, even though you broke even overall.

Sound confusing? You are not alone. There is widespread misunderstanding about what this rule actually does, and even tax professionals disagree on how to interpret it. The IRS has not yet issued formal guidance clarifying how it works.

This page breaks down what the law actually says, presents the two professional interpretations that exist, and shows how the math works under each one.

What Changed

Before 2026, you could write off gambling losses up to the amount of your gambling winnings, as long as you itemized on Schedule A. If you won $3,000 and lost $3,000, your taxable gambling income was $0. Simple.

That changed with the One Big Beautiful Bill Act, commonly referred to as the big beautiful bill. Signed into law July 4, 2025, Section 70114 amended 26 U.S.C. Section 165(d) to add a 90% limitation on gambling loss deductions. This new gambling tax law took effect for 2026 and covers casinos, sportsbooks, poker, lottery, DFS, and online platforms.

So what does “90% of losses” actually mean in practice? That depends on who you ask.

The Exact Text of the Law

Before diving into interpretations, here is what the law actually says.

The key language is in subsections (A) and (B). Subsection (A) says the deduction “shall be equal to 90 percent” of losses. Subsection (B) says it “shall be allowed only to the extent of the gains.” How those two constraints interact is where the disagreement begins.

The Two Competing Interpretations

Tax professionals have published conflicting interpretations of this statute, and the order of operations changes the outcome.

Two readings of the same law, two very different outcomes. So what are the professionals actually saying?

What Tax Professionals Are Saying

Rather than picking a side, here is what different professionals have published:

• Tax Notes uses Step-by-Step math and confirmed the 111% threshold
• Foster Garvey provides detailed mathematical examples consistent with the Step-by-Step reading
• Ave Maria School of Law published an academic analysis using the Step-by-Step reading
• BCS CPA, Greenleaf Trust, and Porte Brown CPA all use Step-by-Step examples
• Barnes Dennig CPA explicitly states the deduction is limited to “the lesser of 90% of your gambling losses or 90% of gambling gains,” consistent with the Lesser-Of reading
• Jones Walker LLP flags the ambiguity directly, noting “a lack of clarity as to which limitation on losses would apply first.” They recommend monitoring for IRS guidance rather than committing to either interpretation.

So are gambling losses deductible? Yes, but as the experts above have shown, the new law limits the deduction to 90% of losses, and how that applies in practice is still being debated. While they work it out, one thing is not in dispute: the IRS expects you to keep detailed records of your gambling activity.

What the IRS Expects You to Track

According to IRS Topic 419 and IRS Publication 529, your gambling diary needs to include:

• The date and type of each wager or gambling activity
• The name and address of the gambling establishment
• The names of other people present with you
• The amounts you won or lost

What counts as a “session” to track? Every trip to the casino. Every poker night. Every day you place bets on a sportsbook app. Each of those is a separate entry in your diary with its own date, location, and amounts. If you gamble twice a week, that is over 100 sessions a year to document.

A casino’s annual win/loss statement or a player’s card summary may be helpful as supporting documentation, but the IRS has indicated they are not sufficient on their own. They expect a session-by-session diary that you maintain throughout the year.

If you gamble at casinos, on sportsbook apps, and at poker nights, that means tracking across all of them. Trying to piece together a full year of gambling activity from memory in April is how records end up incomplete.

How the Math Works

The difference between interpretations only matters in certain scenarios. Here is the same situation calculated both ways.

Scenario: You break even ($3,000 in wins, $3,000 in losses)

When you break even, both interpretations agree: you owe taxes on income that only exists on paper. That is “phantom income.” And the more you gamble at or near break-even, the larger that number grows.

But what happens when your losses exceed your winnings? That is where the two interpretations start to disagree.

Scenario: You lost more than you won ($3,000 in wins, $4,500 in losses)

This is where the interpretations diverge. Under the Step-by-Step interpretation, losing significantly more than you win can eliminate the “phantom income.” Under the Lesser-Of interpretation, you owe tax on 10% of your winnings no matter what. Same person, same year, two very different tax bills depending on which interpretation applies.

The IRS Has Not Weighed In

As of this writing, the IRS has not issued formal guidance, regulations, revenue rulings, or notices interpreting the amended Section 165(d). The IRS Topic 419 page on gambling income has not been updated to reflect the 90% rule.

Until the IRS clarifies the rule, the question of which interpretation applies remains open. This is an important topic to discuss with a qualified tax professional who can evaluate your individual situation.

We will update this page when the IRS issues guidance. In the meantime, the IRS expects accurate records either way. See how a gambling diary web app can help.

Practical Impact

Here is how the two interpretations compare across different scenarios.

A qualified tax professional can help determine how this applies to your specific situation, including whether itemizing deductions makes sense given your overall tax picture.

The good news? There is a real chance this rule does not survive.

Repeal Efforts

Multiple bills have been introduced in Congress to repeal or modify the big beautiful bill gambling tax changes. Many commentators have suggested the provision was included primarily to meet budget scoring requirements rather than as deliberate tax policy, and legislators from both parties have co-sponsored repeal bills.

Read more about the repeal bills currently in Congress.

But even if the rule gets repealed, it may not happen immediately, and it may not be retroactive. That could mean records from 2026 still matter, and that record-keeping may have become more important than ever.

The W-2G Threshold Change

The same bill raised the W-2G reporting threshold from $1,200 to $2,000 for slot machines, bingo, and keno. This means casinos will issue fewer W-2G forms, creating fewer automatic paper trails of gambling activity.

With fewer wins being automatically reported, the documentation burden falls on individual gamblers. According to IRS Topic 419 and IRS Publication 529, the IRS expects a detailed diary or log of gambling sessions, including dates, locations, game types, and per-session amounts.

Fewer paper trails from casinos, more responsibility on you, and a new rule that nobody fully agrees on yet. This is why keeping records throughout the year matters.