Remember that sudden, empty feeling when a complex plan or a risky investment you were counting on collapses right at the finish line? That’s what diving into the 2026 tax code feels like.
While attention was focused on the political theatrics of the One Big Beautiful Bill Act (OBBBA) passed in July 2025, the IRS was busy rewriting the math. And unlike your typical gamble, the IRS never makes a mistake with the numbers.
Sports betting has gone from a backroom whisper to a full-blown national obsession. But as we head into the 2025 tax season, the rules have shifted aggressively. The government doesn’t just want a bigger cut — they have fundamentally changed the equation on how losses work.
The Golden Rule: The IRS Is Your Silent Partner
All gambling winnings count as taxable income. Not just jackpots with giant checks. The 50 bucks from your office bracket. The poker night pot. The $10,000 heater you hit on a Tuesday.
The most dangerous myth in betting used to be “mental netting.” Now, it’s even worse. You can’t tell the IRS, “We won five grand but lost four, so let’s call it one.” The IRS treats the winnings as income, full stop. Losses live in a completely different lane, and that lane just got much narrower.
The OBBBA Twist: The 90 Percent Trap
Here is the headline change for tax year 2025 that will catch millions of bettors off guard.
Previously, if you itemized, you could deduct losses up to the amount of your winnings to break even. That is no longer true.
Under the OBBBA, your deduction for gambling losses is now limited to 90 percent of your qualified losses (which are already capped at your total winnings).
The New Math: Let’s say you had a high-volume year. You won $10,000 but also lost $10,000.
- Old Rule: You deduct the full $10,000 loss against the win. Net taxable income: $0.
- 2026 Rule: You can only deduct 90 percent of that loss ($9,000). Net taxable income: $1,000.
The Result: You broke even at the casino, but you still owe taxes on $1,000 of “income” that you don’t actually have. If you are a high-volume churner — betting $100,000 to win $100,000 — you are suddenly on the hook for taxes on $10,000 of phantom income.
The 1099-K Whiplash
If the reporting rules for apps and digital wallets feel like a moving target, you’re not imagining it. The threshold has ping-ponged for years. But for 2026, the data collection is tighter than ever.
If you received over $2,500 through third-party networks (PayPal, Venmo, Betting Apps), there is a high probability a 1099-K will hit your mailbox. The IRS has upgraded its memory from “elephant” to “supercomputer.” Last year’s invisibility doesn’t carry over.
The Deduction Delusion
Gambling losses can be deducted (subject to the new 90 percent cap), but only if you itemize. You can never claim a net loss to reduce other income.
Here’s where it gets painful. The 2025 standard deduction remains massive due to the OBBBA extensions:
- Single: $15,750
- Married Filing Joint: $31,500
- Head of Household: $23,625
Unless your itemized deductions (state taxes, mortgage interest, charitable donations, plus your clipped gambling losses) exceed those numbers, itemizing is a losing move. For most casual bettors, this means zero tax benefit for losses. You pay taxes on your winnings and get nothing for the bad beats. It’s a tax on entertainment.
How to Stay Audit-Proof
If you do itemize to try and salvage that 90 percent deduction, or if you qualify as a professional gambler, your best defense is meticulous documentation. The IRS loves records. Your log must include:
- Date and type of wager
- Name and address of the establishment or platform
- Names of the people with you
- Amount won or lost
Without these records, the IRS can discard your losses entirely while keeping your winnings in full view.
The days of hiding in the crowd are gone. Everything is digital. Everything is traceable. Keep your logs tight, watch the reporting thresholds, and remember: with the new 90 percent rule, the house (and the IRS) really does always win.
