"I lost more than I won, so I don't owe anything." I hear that every year. It was never quite true, because losses only help if you itemize and can prove them. Starting with 2026, it is even less true, because Congress changed the math.
If you gamble regularly, this is the most important tax change in years. Here is the rule, what it does to a typical return, and how to keep records that will hold up.
The rule now: 90% of losses, capped at winnings
IRC Section 165(d)(1), as amended by Public Law 119-21, says that for losses from wagering transactions, the amount allowed as a deduction for any taxable year "shall be equal to 90 percent of the amount of such losses during such taxable year, and shall be allowed only to the extent of the gains from such transactions during such taxable year." The amendment applies to taxable years beginning after December 31, 2025. For calendar-year individuals, that means 2026 returns, filed in 2027.
Before the change, Section 165(d) allowed wagering losses only to the extent of wagering gains. That cap is still there. What is new is the 90% haircut applied to your losses first.
What the 90% rule does to a break-even year
Walk through it. In 2026 you win $20,000 over the year and lose $20,000. You broke even. Your bank account agrees.
- You report $20,000 of gambling winnings as income.
- Your allowable loss is 90% of $20,000, which is $18,000.
- The $18,000 is within the $20,000 cap, so you can deduct $18,000, if you itemize.
- Taxable gambling income: $2,000, on a year when you made nothing.
Now a losing year. You win $20,000 and lose $30,000. Ninety percent of $30,000 is $27,000, but the deduction is still capped at your $20,000 of winnings. You deduct $20,000 and owe nothing on the gambling. Heavy losers are not hurt by the change. Break-even and modestly winning gamblers are.
Losses only help if you itemize
IRS Tax Topic 419 says losses are deductible only if you itemize on Schedule A, and that the losses you deduct "can't be more than the amount of gambling income you reported on your return." They are claimed as other itemized deductions.
If you take the standard deduction, your gambling losses do nothing for you. Every dollar of winnings is taxed. For a casual gambler with a $5,000 jackpot and no other itemized deductions, the losses on the way to that jackpot may be worthless on the return.
This is why "I lost more than I won" can still produce a tax bill. The winnings are income on Schedule 1. The losses are an itemized deduction that may not be usable.
The casual player's surprise
Most recreational gamblers take the standard deduction. Consider a 2026 example. A casual player hits a $6,000 jackpot and receives a Form W-2G. Over the year, she also lost $7,000 on other trips. She has no mortgage interest and modest state taxes, so the standard deduction is larger than her itemized deductions would be, even counting the gambling losses.
- She reports $6,000 of gambling winnings.
- Her losses are deductible only on Schedule A. Even with the 90% rule, $6,300 of allowable losses would be capped at $6,000, but only if itemizing beats the standard deduction.
- If it does not, she takes the standard deduction and pays tax on the full $6,000, despite losing $1,000 for the year.
Run the numbers both ways before you file. For some people, the gambling losses are what push itemized deductions over the standard deduction. For many, they are not.
What counts as a loss
Section 165(d)(2) says "losses from wagering transactions" include "any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction." IRS Publication 529 describes gambling losses as including "the actual cost of wagers plus expenses incurred in connection with the conduct of the gambling activity, such as travel to and from a casino." Under the new law, those expenses are part of the losses subject to the 90% rule and the winnings cap.
You must report the gross
Publication 529 says you "can't reduce your gambling winnings by your gambling losses and report the difference." You report the full amount of winnings and claim losses separately. Casinos and sportsbooks report qualifying wins on Form W-2G, so the IRS sees the gross. See gambling winnings and Form W-2G.
Records: the diary the IRS expects
Gambling losses are easy to claim and hard to prove, and the burden of proving them is on you. Tax Topic 419 says you must "keep an accurate diary or similar record of your gambling winnings and losses" and be able to produce receipts, tickets or statements.
Publication 529 says the diary should contain at least:
- The date and type of your specific wager or wagering activity.
- The name and address or location of the gambling establishment.
- The names of other persons present with you at the gambling establishment.
- The amount or amounts you won or lost.
It also lists supporting documents: Forms W-2G and 5754, wagering tickets, canceled checks, credit records, bank withdrawals, and statements of actual winnings or payment slips from the establishment. For specific games it suggests more, such as a record of the machine number and all winnings by date and time for slot machines, the table number for table games, and validated tickets for keno.
Practical tips
- Use the casino's player card and request the annual win/loss statement. It is not a substitute for a diary, but it helps.
- Keep sportsbook account histories. Download them every quarter, before accounts close or data is purged.
- Write the diary entry the same day. Reconstructions made during an audit are hard to defend.
- Keep ATM and bank records that match your gambling trips.
When gambling is more than recreation
A small number of people gamble as a trade or business and report on Schedule C. The wagering loss limits in Section 165(d) still apply, because they cover losses from wagering transactions and deductions incurred in carrying on any wagering transaction. Whether someone is in the trade or business of gambling is a facts-and-circumstances question with real consequences. Do not take that position casually.
When gambling has become a financial problem
Sometimes the tax issue is a symptom. A year of heavy gambling can leave winnings on the return, losses you cannot fully deduct, and no money to pay the tax. If that is where you are, file on time, report everything, and deal with the balance through a realistic payment arrangement. The steps in what to do when you owe the IRS apply. And if gambling itself has become a problem, getting help for that is worth more than any deduction.
The bottom line
For 2026 and later, you can deduct only 90% of your gambling losses, and never more than your winnings, and only if you itemize. A break-even year can now leave taxable income. Keep a contemporaneous diary and the documents that back it up, report winnings in full, and plan for tax on wins even in years you feel like you lost.
The odds were never in your favor at the table. Do not let them be against you on the return too.
Frequently asked questions
What is the new 90% rule for gambling losses?
IRC 165(d)(1), as amended by Public Law 119-21, allows a deduction equal to 90% of wagering losses for the year, and only up to the amount of wagering gains. It applies to taxable years beginning after December 31, 2025, so calendar-year 2026 returns are the first affected.
Can I owe tax on gambling if I broke even?
Starting with 2026, yes. If you won $20,000 and lost $20,000, you report $20,000 of winnings but can deduct only 90% of losses, or $18,000, leaving $2,000 taxable. If you do not itemize, none of the losses are deductible.
Do I need to itemize to deduct gambling losses?
Yes. IRS Tax Topic 419 says gambling losses are deductible only if you itemize on Schedule A, and the losses you deduct cannot exceed the gambling income you reported. With the standard deduction, losses provide no tax benefit.
What records do I need for gambling losses?
IRS Publication 529 says to keep a diary with the date and type of wager, the name and location of the establishment, the names of people with you, and the amounts won or lost, plus documents such as Forms W-2G, tickets, bank records and payment slips.
This guide is general information, not legal advice. Tax law changes and every case turns on its own facts.