90 percent gambling loss deduction, explained

Through tax year 2025, a gambler who itemized could deduct losses up to the full amount of their winnings. Win $50,000 and lose $50,000 and your federal taxable gambling income was zero.

Public Law 119-21, the 2025 reconciliation act, rewrote 26 U.S.C. 165(d). It did that at section 70114(a). From tax year 2026 the deduction “shall be equal to 90 percent of the amount of such losses during such taxable year, and (B) shall be allowed only to the extent of the gains from such transactions during such taxable year.”

The statute has two subparagraphs and they apply in order. Subparagraph (A) takes 90 percent of your total losses. Subparagraph (B) then caps that result at your winnings. So the deduction is the lesser of 90 percent of losses and your winnings.

The other reading, 90 percent of the lesser of losses and winnings, gives a different answer whenever your losses exceed your winnings. On $50,000 won and $52,000 lost the two readings differ by $1,800 of deduction. Two IRS documents state the first ordering: Publication 505, and the instructions to the winner printed on Form W-2G (Rev. January 2026).

If you itemize, the cap takes a tenth off your losses in every year where 90 percent of them is less than your winnings. A net winner pays tax on their profit plus a tenth of their losses. The cap adds the most when your losses equal your winnings: a tenth of your winnings, on a year you kept nothing. When your losses sit between your winnings and your winnings divided by 0.9, it taxes income you never kept, because you finished the year down. Once your losses reach your winnings divided by 0.9, 90 percent of them equals or exceeds your winnings. Subparagraph (B) then holds the deduction at your winnings, as the old rule did, and the cap adds nothing.

So for an itemizer who finished the year well down, the cap adds nothing federally. That is not the same as owing no federal tax on the winnings. If you take the standard deduction, your losses do nothing at all and the whole of your winnings is taxed, as the next section explains.

Gambling losses are an itemized deduction. If your total itemized deductions do not beat the standard deduction, which is $16,100 for a single filer in 2026, the losses do nothing for you and your gross winnings are taxed in full.

There is a trap in the other direction too. If your losses are what push you over the standard deduction, the comparison between filing with and without gambling also credits gambling with unlocking your other itemized deductions. The number is right, but it is not purely tax on the winnings. Our calculator flags that case rather than hiding it.