One Big Beautiful Bill Act Reshapes Gambling Loss Deductions for 2026 Tax Year

The One Big Beautiful Bill Act, signed into law on July 4, 2025, introduces new limits on how gamblers can deduct losses beginning January 1, 2026, and this adjustment applies across both recreational and professional categories while replacing the previous allowance of full deductions up to the amount of winnings. Under the prior framework, taxpayers could subtract 100 percent of their gambling losses provided those losses did not exceed reported winnings, yet the new statute caps the deductible portion at 90 percent of losses and maintains the overall ceiling at winnings, which means net-zero outcomes can still generate taxable income in certain cases.

Breakdown of the Legislative Shift

Legislators crafted the measure to adjust deduction mechanics for all gambling activity reported on federal returns, and the change operates uniformly regardless of whether an individual files as a recreational player or as someone whose primary occupation involves wagering. Recreational gamblers continue to report losses as itemized deductions on Schedule A, while professionals list both losses and related expenses on Schedule C, yet both groups now face the 90-percent restriction that reduces the amount available to offset winnings. Data from the Internal Revenue Bulletin 2026-19 shows that this percentage reduction can leave a taxable remainder even when total losses equal or surpass total winnings, because only nine-tenths of the loss figure qualifies for subtraction.

Tax preparation software and accounting firms began updating their systems in early 2026 to reflect the revised percentages, and by August 2026 many filers had started running preliminary calculations to understand their exposure under the new rules. The legislation does not alter the requirement that losses must be substantiated through records such as wagering tickets, statements, or electronic logs, so documentation standards remain consistent with earlier guidance.

Application to Recreational Gamblers

Individuals who treat gambling as a hobby continue to claim losses solely on Schedule A when they itemize, and the 90-percent cap now limits how much of those losses can reduce taxable winnings reported on the same form. For example, a recreational player who records $10,000 in winnings and $10,000 in losses can deduct only $9,000 under the updated statute, leaving $1,000 of winnings subject to tax. This outcome differs from prior years when the full $10,000 loss would have eliminated the tax liability on the winnings, and observers note that the adjustment effectively creates a taxable event whenever losses match or exceed winnings.

Because the deduction appears on Schedule A, it remains subject to the overall limit on itemized deductions and interacts with other provisions such as the alternative minimum tax, which can further influence the net benefit. Recreational players who previously relied on gambling losses to reach the threshold for itemizing may find the reduced deduction amount affects their decision to itemize versus taking the standard deduction.

Impact on Professional Gamblers

Professionals who report gambling as a trade or business on Schedule C encounter the same 90-percent loss limitation, yet they may also include ordinary and necessary expenses such as travel, training, or equipment in their calculations. The statute applies the percentage cap only to the loss component, leaving expense deductions intact, which means a professional with substantial business costs can still offset a larger portion of income through those separate line items. Even so, the reduced loss deduction can produce taxable income when winnings equal losses, because the 10-percent portion that cannot be subtracted remains in the net profit figure carried to the return.

Accountants working with professional clients have begun modeling scenarios that incorporate both the capped losses and the full expense deductions, and many report that the combined effect varies widely depending on the ratio of losses to expenses. The Internal Revenue Service has not issued additional guidance beyond the bulletin that outlines the core changes, so practitioners continue to apply the statute as written while awaiting any clarifying regulations.

Record-Keeping and Compliance Considerations

Both recreational and professional gamblers must maintain detailed records that separate winnings, losses, and expenses, because the 90-percent limitation requires precise allocation of each category. Electronic tracking tools and casino statements have become more important under the new rules, since any unsubstantiated amounts cannot be used in the deduction computation. Tax professionals recommend retaining records for at least three years after filing, consistent with general IRS retention guidelines, and they advise clients to organize documentation by gambling session or venue to facilitate accurate reporting.

Software updates released in mid-2026 now include fields that automatically apply the 90-percent factor once users enter loss totals, which reduces manual calculation errors. Filers who prepare returns manually must remember to multiply the verified loss amount by 0.9 before comparing it to winnings, and they must ensure the resulting figure does not exceed the winnings total.

Conclusion

The One Big Beautiful Bill Act establishes a permanent adjustment to gambling loss deductions that took effect at the start of 2026, and the 90-percent cap combined with the winnings ceiling produces taxable income in situations that previously would have resulted in a zero balance. Recreational gamblers on Schedule A and professionals on Schedule C both operate under the revised percentage, although professionals retain the ability to deduct qualifying business expenses in full. Taxpayers preparing for the 2026 filing season continue to review their records and run preliminary figures, while tax software providers and accounting firms have integrated teh statutory changes into their tools and advisory services.