House tax writers moved on Sept. 16 to reverse a gambling tax change that is set to take effect in 2026. The House Ways and Means Committee approved a measure that would restore the federal deduction for gambling losses to 100%, undoing a rule that otherwise limits the deduction to 90% and can leave some bettors with taxable income even when they break even for the year.
The committee action does not change current law on its own. The provision still must pass Congress and be signed into law. But for gamblers, horse racing participants, casinos and others tied to the gaming industry, the vote is an early sign that lawmakers are willing to revisit a provision that has drawn criticism since it was enacted last year.
What Changed
Under current federal law, gamblers beginning in tax year 2026 can deduct only 90% of their wagering losses against winnings, according to Yahoo’s Sept. 16 report. Before that change, the long-standing framework allowed losses to offset winnings in full, up to the amount of winnings.
The House Ways and Means Committee approved legislation on Sept. 16 that would restore the deduction to 100% for the 2026 tax year if enacted. Yahoo reported the measure was included in a broader tax bill. The Nevada Globe separately reported that the committee vote was 38-5 and described the measure as restoring the full federal income tax deduction for gambling losses.
That matters because the 90% cap changes the tax result even when a gambler has no economic profit. A bettor who wins $100,000 during the year and loses $100,000 during the year would be allowed to deduct only $90,000 of those losses under current law, leaving $10,000 of taxable gambling income.
Who Is Affected
The direct impact falls on taxpayers who report gambling winnings and losses on their federal returns. That includes casual gamblers, high-volume sports bettors, horseplayers and casino patrons. It can also affect households with higher incomes more sharply because additional taxable income may be exposed to higher marginal tax rates.
For affluent households, the issue is not limited to the tax on the gambling activity itself. Higher adjusted gross income or taxable income can ripple into other parts of the return, including phaseouts, surtaxes and the taxation of investment income, depending on the household’s broader financial picture.
The gaming industry also has a stake. Yahoo cited National Thoroughbred Racing Association president and CEO Tom Rooney, who called the committee vote “a good first step.” The Nevada Globe reported that Nevada lawmakers and gaming interests have pushed for a quick fix, arguing that taxpayers should not owe tax on gains they did not actually keep.
The After-Tax Math
The practical issue is straightforward: the deduction cap can create what critics call phantom income. That means tax may be due on paper income even if the taxpayer came out flat overall.
| Example | 100% Loss Deduction | 90% Loss Deduction |
|---|---|---|
| Gambling winnings | $100,000 | $100,000 |
| Gambling losses | ($100,000) | ($90,000) |
| Taxable gambling income | $0 | $10,000 |
Example: a household with $100,000 of gambling winnings and $100,000 of gambling losses would owe federal income tax on $10,000 of income under the 90% rule, despite breaking even economically. If Congress restores the deduction to 100%, that same household would have no taxable gambling income from those wagers.
For a high earner, that difference can be meaningful. At a 37% marginal federal rate, $10,000 of extra taxable income would translate into $3,700 of federal income tax, before considering any other related tax effects. That is only an illustration, but it shows why the deduction percentage matters.
Moves to Discuss With Your Advisor
For now, the key point is that the proposed fix has cleared committee but has not become law. Households with substantial gambling activity may want to keep detailed records of winnings and losses and track the bill’s progress before year-end planning for 2026 becomes final.
It may also be worth discussing with a CPA how gambling income interacts with the rest of a return. Even temporary uncertainty can complicate estimated payments, withholding and year-end cash planning for taxpayers whose income already includes bonuses, equity compensation, business income or large investment gains.
Taxpayers who expect meaningful wagering activity in 2026 may also want to watch whether Congress makes the change effective for the full tax year, as Yahoo reported, or whether any final bill differs from the committee version.
What to Watch Next
The next question is whether House leadership brings the broader tax package to the floor and whether the Senate takes up a similar fix. The Nevada Globe reported that there is companion legislation in the Senate backed by Sens. Catherine Cortez Masto and Ted Cruz.
There is also a timing issue. Yahoo reported that the committee-approved change would apply to the 2026 tax year if signed into law. Until that happens, the 90% limitation remains the law scheduled to govern 2026 returns.
In short, the committee vote is a meaningful procedural step, not the finish line. For taxpayers who gamble at any significant scale, the difference between a 90% and 100% loss deduction can determine whether a break-even year is taxed as if it were profitable.
Sources
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
