Gambling in 2026? The IRS Changed the Game
If you gamble in 2026, the tax rules may look different than you expect.
For years, many taxpayers understood the basic rule this way: gambling winnings are taxable, and gambling losses may be deducted up to the amount of gambling winnings if you itemize. In other words, if you won and lost the same amount, you may have assumed you broke even for tax purposes.
Starting in 2026, that may no longer be the case.
Under the new rule, gambling loss deductions are limited to 90% of gambling losses, and still cannot exceed gambling winnings. That means some taxpayers may owe tax even if they did not actually walk away with a profit. The IRS confirms that beginning in 2026, gambling loss deductions on Schedule A are limited to the lesser of 90% of gambling losses or gambling winnings.
Gambling Winnings Are Still Taxable
The first thing to understand is that gambling winnings are taxable income.
This can include winnings from:
- Sports betting
- Casino games
- Slot machines
- Poker
- Lottery tickets
- Raffles
- Horse racing
- Online gambling
- Fantasy sports or similar betting activity
If you win money gambling, the IRS expects that income to be reported on your tax return. This is true whether you receive a tax form or not.
Some gambling winnings may be reported on Form W-2G. This form can show the amount won, the type of gambling activity, the date of the transaction, and whether federal taxes were withheld.
But even if you do not receive a W-2G, your winnings may still be taxable.
The Big 2026 Change: Losses Are Limited
Before 2026, gambling losses were generally deductible up to the amount of gambling winnings for taxpayers who itemized deductions.
Beginning in 2026, that changes. The deduction is limited to 90% of gambling losses, and the deduction still cannot exceed gambling winnings. The IRS has also noted that this statutory change reduces the expected after-tax return for taxpayers who claim itemized gambling loss deductions.
That may sound small, but it can create a major tax surprise.
For example, say you have $1,000 in gambling winnings and $1,000 in gambling losses.
Under the new rule, only 90% of the $1,000 loss may be deductible. That means you may only deduct $900, leaving $100 of taxable gambling income.
You broke even in real life, but not necessarily on your tax return.
That is what some people are calling “phantom income.”
What Is Phantom Income?
Phantom income is income that appears taxable even though the taxpayer did not actually end up ahead financially.
With the new gambling loss deduction rule, a bettor may win and lose the same amount but still show taxable income because only 90% of losses may be deductible.
Here is a simple example:
You win $10,000 gambling.
You lose $10,000 gambling.
You feel like you broke even.
But only $9,000 of losses may be deductible.
That could leave $1,000 of taxable income.
The larger the betting activity, the more noticeable this can become.
Why Records Matter More Than Ever
Good recordkeeping has always been important for gamblers, but the 2026 rule makes it even more important.
If you gamble, you should keep records of:
- Winnings
- Losses
- Dates of gambling activity
- Type of gambling activity
- Casino or sportsbook statements
- Lottery tickets
- Betting app reports
- Receipts
- W-2G forms
- Bank records
You should not rely only on memory. If the IRS questions the return, you may need documentation to support both your winnings and your losses.
A W-2G Does Not Tell the Whole Story
A W-2G reports certain gambling winnings, but it may not show your entire gambling picture.
For example, you may receive a W-2G for a large win, but that form may not fully reflect other losses you had throughout the year. That is why keeping your own records is important.
Different types of gambling may have different reporting thresholds. A casino, sportsbook, or payer may not issue a W-2G for every win. However, taxable income still needs to be reported properly.
You Usually Need to Itemize to Deduct Gambling Losses
Another important point: gambling losses are generally claimed as an itemized deduction on Schedule A.
That means if you take the standard deduction instead of itemizing, you may not get the benefit of deducting gambling losses. This can make the tax result even more painful for casual gamblers.
Many taxpayers do not think about this until tax time, especially if they assume losses automatically offset winnings. They do not always work that way.
Casual Gamblers Should Pay Attention
This rule is not only for professional gamblers or high-stakes bettors.
Casual gamblers may also be affected. With the growth of sports betting apps, online casinos, and fantasy sports platforms, more people are placing bets from their phones. That can create more transactions, more records, and more confusion at tax time.
Even smaller bettors should understand the basic rule: winnings are reportable, losses must be documented, and starting in 2026, losses may not fully offset winnings.
What Should Gamblers Do in 2026?
If you gamble in 2026, take a proactive approach.
Keep detailed records throughout the year. Download statements from betting apps and casinos. Save receipts and tickets when possible. Track both wins and losses.
You should also be careful with tax withholding. If you have large winnings and little or no withholding, you may owe more than expected when you file.
If gambling activity is significant, speaking with a tax professional before filing may help you avoid mistakes.
What If You Already Owe the IRS?
If gambling winnings create a tax bill you cannot afford, do not ignore it.
Unpaid tax debt can lead to IRS notices, penalties, interest, liens, levies, or wage garnishment. Depending on your situation, you may have options such as a payment plan, penalty relief, hardship status, or another tax resolution strategy.
The most important thing is to address the issue before it grows.
Final Thoughts
Gambling in 2026 comes with a new tax reality.
The IRS still taxes gambling winnings, but the ability to deduct gambling losses has changed. Because only 90% of gambling losses may be deductible, some taxpayers may owe tax even when they feel like they broke even.
If you gamble, keep good records, report winnings accurately, document losses, and do not assume your losses will fully protect you.
If gambling taxes, IRS notices, or tax debt have become a problem, Arch Tax can help you understand your options.
Contact Arch Tax today for a free, confidential consultation.
