Win $50,000 and Lose $50,000 Gambling in 2026, and the IRS Taxes $5,000 of It

For tax year 2026 (the return you file in 2027), a gambler who wins $50,000 and loses $50,000 can deduct $45,000 of the losses, and the other $5,000 is taxed as income. 26 U.S.C. §165(d)(1), rewritten by §70114 of Public Law 119-21, sets the deduction at "90 percent of the amount of such losses" and still allows it "only to the extent of the gains" for the same year. Through tax year 2025 the same bettor, itemizing, deducted all $50,000.

The rule applies to taxable years beginning after December 31, 2025 (§70114(b)). Section 165(d) has no carryforward, so the disallowed tenth never reaches a later year.

Two limits, applied in order

The new paragraph has two parts, and the order matters. First take 90 percent of the year's wagering losses. Then cap that figure at the year's wagering gains. Treasury's proposed rewrite of the regulation reads the same way, and on a joint return it pools both spouses: "90 percent of the combined losses of the spouses" against their combined gains (proposed §1.165-10, 91 FR 20599). The proposal was published April 17, 2026, and as of October 21, 2026 no final rule had followed it.

Because the 90 percent comes first, a bettor who lost money on the year can still report income. Win $50,000 and lose $52,000, and 90 percent of the losses is $46,800, below the $50,000 cap: $3,200 is taxable on a year that ended $2,000 down. Losses have to reach $55,556 on $50,000 of winnings (winnings divided by 0.9) before the deduction covers every dollar won.

Paragraph (2) widens what counts as a loss. Any deduction "incurred in carrying on any wagering transaction" is a wagering loss (§165(d)(2)), so a professional gambler's travel and other business costs sit inside the same 90 percent figure. That definition first appeared in 2017 with a 2025 sunset; Public Law 119-21 made it permanent.

Who the 90 percent never touches

Gambling losses are an itemized deduction, claimed on Schedule A line 16, and only "to the extent of gambling winnings reported on Schedule 1 (Form 1040), line 8b" (Schedule A instructions). If you take the standard deduction you deduct none of your losses, at 100 percent or at 90, and your winnings were already taxed in full. The IRS also requires "an accurate diary or similar record" of winnings and losses before any loss counts (Topic 419).

That limits the reach. Treasury estimates that about 2.3 million taxpayers reported gambling winnings for tax year 2022, about 670,000 claimed an itemized loss deduction, and it projects 673,000 such claims for tax year 2026 (REG-113229-25 special analysis).

The $65,000 filer who broke even, worked three ways

TaxMath's P1 filer is single with $65,000 of wages. Give that filer $50,000 of 2026 gambling winnings and $50,000 of documented losses, and nothing else on Schedule A, to isolate the losses. Each tax figure uses the 2026 single schedule in Rev. Proc. 2025-32, Table 3: $5,800 plus 22 percent of taxable income over $50,400, or $1,240 plus 12 percent over $12,400 below that.

The middle column is the cost that predates 2026. Winnings enter adjusted gross income in full, and losses come back only on Schedule A, so the losses replace the $16,100 standard deduction rather than adding to it. Breaking even under the old rule already cost this filer $3,392 against not gambling at all.

The last column adds the new cost. The $5,000 the 90 percent rule disallows lands in the 22 percent bracket, which runs from $50,400 to $105,700 of taxable income: $1,100 of federal tax on a year with no net winnings. Against not gambling at all, the gap is $4,492.

Adjusted gross income reads $115,000 in both gambling columns. Anything figured from AGI sees the gross winnings and none of the losses, the 7.5 percent floor on medical expenses for one, and so do the states below that tax winnings with no offset.

What the states do with the same $50,000

No state has to follow §165(d). The state rules we checked fall into three groups.

No deduction at all. In these states the 90 percent rule changes nothing, because the state never allowed the losses. Illinois lists gambling losses among items that may not be subtracted: "Illinois does not allow a deduction for gambling losses" (IDOR). North Carolina's itemized deduction is the sum of the items G.S. §105-153.5(a)(2) lists, which are charitable contributions, mortgage interest and property tax, and medical expenses; gambling losses are not among them. Connecticut's Department of Revenue Services says gambling losses "are not deductible for Connecticut income tax purposes" and the tax "applies to all gambling winnings included in federal adjusted gross income" (IP 2015(23)). Massachusetts disallows losses claimed on Schedule A, with two exceptions: gambling as a trade or business, and losses at casinos licensed under MGL ch. 23K or at licensed racing and simulcast sites, deductible only against winnings from those places in the same calendar year (Mass. DOR).

Their own netting rule, at 100 percent. New Jersey lets losses "offset gambling winnings from the same year as long as they do not exceed your total winnings," and a loss year is reported as zero "net gambling winnings" (NJ Division of Taxation). Pennsylvania lets you deduct "your costs of gambling, wagering, betting, and playing lotteries from your winnings," but not travel, meals or tip sheets, and a loss in that income class cannot offset wages (2025 PA-40 instructions). California follows §165 as of its January 1, 2025 conformity date, and the Franchise Tax Board's answer on §70114 is "California does not conform" (FTB), so a California itemizer still deducts losses up to winnings in full.

Federal taxable income as the starting line. North Dakota's 2025 return opens with "Federal taxable income from Form 1040 or 1040-SR, line 15" (Form ND-1, line 1b). A return built on that line carries the federal Schedule A into the state base, the 90 percent figure included, unless the state writes a modification for it.

For the break-even P1 filer, the state difference against not gambling at all:

The Illinois and North Carolina figures are the flat 4.95% and 3.99% rates applied to the $50,000 of winnings; both states' 2026 tables are final. Massachusetts is provisional in our tables, pending its 2026 publications (data status). Connecticut taxes the same winnings with no offset; it is left out of the table because we have not verified that the comparator's wage figure reproduces every phase-out in Connecticut's schedule between $65,000 and $115,000. Each of the three state figures above is larger than the $1,100 federal cost of the 90 percent rule: in those states, the break-even gambler was already paying tax on every dollar won.

A bill to undo it, pending

H.R. 10357, introduced September 14, 2026, contains a section titled "Reinstatement of rules for wagering losses" that would restore the pre-2026 wording of §165(d), losses allowed to the extent of gains with no 90 percent factor, for taxable years beginning after December 31, 2025. The Ways and Means Committee ordered it reported 38 to 5 on September 16, 2026. As of October 21, 2026 it had not passed the House, and it is not law. Until it is, the 2026 return applies 90 percent.

What changes the number for your own year is the order of operations: take 90 percent of documented losses, cap it at winnings, and compare the Schedule A total, losses included, against $16,100. For the state half in a no-offset state, run your income with and without the winnings through the calculator: in Illinois, North Carolina and Connecticut the difference is the tax on your winnings, whatever you lost.

This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance specific to your situation.