The 90% Gambling Loss Deduction Rule: Break-Even Years Can Now Owe Tax

• LawSection 70114 of P.L. 119-21 amended IRC section 165(d), titled 'Extension and modification of limitation on wagering losses'.Source
• New limitThe deduction equals 90 percent of wagering losses for the year and is allowed only to the extent of wagering gains.Source
• Effective dateApplies to taxable years beginning after December 31, 2025.Source
• Proposed regulationsREG-113229-25, published April 17, 2026, would update Treas. Reg. 1.165-10, including a combined 90% rule for joint filers.Source
• ItemizingTaxpayers who do not itemize cannot claim any deduction for wagering losses.Source

What changed, in one paragraph

Section 70114 of P.L. 119-21, the 2025 budget reconciliation act often called the One Big Beautiful Bill Act, rewrote section 165(d) of the Internal Revenue Code. The deduction for losses from wagering transactions is now equal to 90 percent of those losses for the taxable year, and it is still allowed only to the extent of your gains from wagering during that year. Section 70114(b) makes the change apply to taxable years beginning after December 31, 2025, so for most individuals it starts with the 2026 calendar year and the return filed in 2027.

Before the change, you could deduct 100% of your losses up to the amount of your winnings. The cap at winnings stays; what is new is the 10% haircut applied to losses first. The result is simple to state and uncomfortable in practice: a year in which you exactly break even can now produce taxable income.

This article is general information, not tax advice. Your own return depends on facts such as filing status, other deductions and state law, so check the numbers with a tax professional before acting on them.

Before and after: the rule side by side

The amended statute also keeps a second piece that used to be temporary. The 2017 Tax Cuts and Jobs Act had said, for tax years 2018 through 2025, that "losses from wagering transactions" include any deduction otherwise allowable that you incur in carrying on a wagering transaction. The new paragraph (2) of section 165(d) carries that definition forward without an end date.

The no-carryforward rule is long-standing: IRS Chief Counsel memorandum AM 2008-011 notes that excess wagering losses cannot be carried to another year or used against non-wagering income. The IRS proposed regulations published on April 17, 2026 (REG-113229-25) would revise Treas. Reg. 1.165-10 to match the new 90% rule; comments were due June 16, 2026.

Who it affects

The change only matters if you can deduct gambling losses in the first place. The IRS economic analysis attached to the proposed regulations says plainly that taxpayers who do not itemize get no deduction for wagering losses. If you take the standard deduction, you already pay tax on every dollar of reported winnings, and the 90% rule changes nothing for you.

• Casual gamblers who itemize. They feel it whenever losses are close to or below about 111% of winnings, because 90% of losses is then smaller than gains.
• Joint filers. Under the proposed regulations, spouses filing jointly deduct 90 percent of their combined losses, up to their combined gains.
• Professional gamblers. In Mayo v. Commissioner, 136 T.C. 81 (2011), the Tax Court let a professional deduct business expenses beyond his net winnings. The TCJA definition reversed that result, and the new law keeps it, so expenses such as travel and lodging fall inside the 90% limit along with wagers. IRS Chief Counsel memorandum 202111012 explains that history, and concludes that the TCJA definition applies to individuals, not to gambling businesses such as casinos.
• High-volume players. The more you churn, the larger both gains and losses become, and the larger the 10% that cannot be deducted.

Worked examples: break-even, winning and losing years

All figures below are an Example for an itemizer. The tax rate used is an illustrative 22% marginal rate, not a statement about your bracket.

In the break-even row, $5,000 × 22% = $1,100 of federal tax on a year in which you made nothing. In the small-loser row you lost $1,000 in cash and still have $1,100 of taxable income, which at 22% is $242. In the clear-loser row the cap at gains is the binding limit, so the 90% rule has no effect.

The crossover is easy to compute: the 90% rule bites when 0.9 × losses is less than gains, that is when losses are below gains ÷ 0.9. For $20,000 of gains, that point is $22,222. Below it, the rule costs you tax; above it, you are back to the familiar "losses capped at winnings" result.

The extra taxable amount in the zone where the rule bites is always gains minus 90% of losses. For a net winner, that equals net winnings plus 10% of losses, so the hidden cost grows with volume rather than with profit. Two players who each net $10,000 can owe tax on very different amounts: one with $20,000 of gains and $10,000 of losses reports $11,000; one with $110,000 of gains and $100,000 of losses reports $20,000.

How cashback and loss rebates interact with the 90% rule

The IRS has not said how casino loss rebates should be classified, so the two common approaches covered in our guide to whether casino cashback is taxable both appear in practice: the rebate either reduces your losses or is added to your gambling gains. Under the 90% rule they give slightly different answers.

Example. Start from the break-even year: $50,000 of gains, $50,000 of losses. Add $1,000 of cashback paid during the year.

• Rebate reduces losses: losses $49,000; 90% = $44,100; gains $50,000; taxable $5,900.
• Rebate counted as a gain: gains $51,000; losses $50,000; 90% = $45,000; taxable $6,000.
• Without any cashback: taxable $5,000.

So $1,000 of cashback adds $900 to $1,000 of taxable income, and at the illustrative 22% rate that is $198 to $220 of tax. Under the old 100% rule both approaches would have produced exactly $1,000 of taxable income in this year, because gains exceeded the remaining losses. The new rule adds a further $5,000 on top, created by the haircut on the underlying $50,000 of losses, so near break-even the cashback is no longer the main tax driver; the haircut is. You can model the pre-tax side with the cashback calculator, then apply the steps above.

Why session records matter more now

The 90% applies to your wagering losses, so how you measure gains and losses drives the size of the haircut. AM 2008-011 says a casual slot player recognizes a gain or loss when cashing out tokens, not on every spin. Its example: someone who enters with $100 and leaves with $300 has a $200 gain, even if the spins inside included $1,000 of wins and $700 of losses. In 2015 the IRS also proposed, in Notice 2015-21, an optional safe harbor that measures slot results per session within a calendar day; it was released as a proposed revenue procedure that is not available until published in final form.

Session measurement typically makes both totals smaller than spin-by-spin or W-2G-by-W-2G totals. Because the non-deductible amount is 10% of losses, smaller recorded losses also mean a smaller haircut. Example: $8,000 of session losses lose $800 of deduction; if the same play were recorded as $30,000 of gross losses against matching gross wins, the non-deductible slice would be $3,000.

• Record each session's buy-in and cash-out, with date and game.
• Keep operator win-loss statements and every Form W-2G.
• Log rebates separately with the period they cover.

IRS Topic No. 419 requires a diary or similar record plus supporting statements, and that requirement does not change.

Is a repeal coming?

Several bills have tried to restore the full deduction. Representative Dina Titus of Nevada introduced the FAIR BET Act in July 2025. A September 16, 2026 report by FOX5 Las Vegas says the House Ways and Means Committee approved the Digital Asset Tax Certainty Act with language that would keep the deduction at 100%, and that the bill still needed votes in both chambers.

Until a change is enacted and signed, the statute as amended by section 70114 is the law, and the proposed regulations follow it. Plan for the 90% rule and treat any repeal as a possible later adjustment, not something to count on when deciding how much to play.

A tax change that makes break-even years costly is also a reminder that gambling is entertainment with a price. If you want to cap that price, set deposit limits or a cooling-off period in your account settings, see how casino cashback is calculated before relying on it, and reach the National Problem Gambling Helpline at 1-800-MY-RESET if play stops feeling optional.

21+ only. Cashback reduces losses; it does not turn a losing game into a winning one. Set a deposit limit before you claim any rebate. Gambling problem? Call or text 1-800-MY-RESET — free, confidential, 24/7.

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