Broke even gambling in 2026? Phantom income means you can still owe federal tax

Your own numbers: the W2gMatch phantom-income calculator shows the 2025, 2026 and 2027 result for any winnings and losses.

What is phantom income from gambling?

Phantom income is taxable gambling income created when losses equal or exceed winnings but only 90 percent of the losses may be deducted. A player who wins $100,000 and loses $100,000 in 2026 has kept nothing, deducts $90,000, and owes tax on $10,000. The phrase is not in the statute or in any IRS publication; the arithmetic is.

The deduction is available only to taxpayers who itemize. IRS Topic 419 says you may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040), and the amount of losses you deduct cannot be more than the amount of gambling income you reported.^[2] Winnings are reported in full as other income on Schedule 1 (Form 1040), whether or not a Form W-2G arrived. If you take the standard deduction, you deduct no losses at all and owe tax on 100 percent of your winnings, in 2025 and in 2026 alike.

What does the law actually say?

As amended, 26 U.S.C. 165(d)(1) provides that for losses from wagering transactions the amount allowed as a deduction for any taxable year “(A) 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.” Section 165(d)(2) adds that losses from wagering transactions include “any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction.”^[1]

The amendment is section 70114 of Public Law 119-21, the One Big Beautiful Bill Act, signed July 4, 2025, and it applies to taxable years beginning after December 31, 2025.^[1][6] That means the 2026 return you file in early 2027 is the first one affected. News stories that say the cap “takes effect January 1, 2027” mean the filing season; the wagers being counted are the ones you place during 2026. A 2025 return, filed in 2026, still deducts losses up to 100 percent of winnings for itemizers. The rule itself, with the repeal history, is on our 90% gambling loss cap page.

How much tax do I owe if I broke even in 2026?

Win $10,000 and lose $10,000 in 2026: you deduct $9,000 and $1,000 is taxable. Win $50,000 and lose $50,000: you deduct $45,000 and $5,000 is taxable, which at a 32 percent marginal rate is $1,600 of federal tax. Win $100,000 and lose $100,000: you deduct $90,000 and $10,000 is taxable. In every break-even case the phantom income is exactly 10 percent of the losses, and in 2025 the same year produced $0.

The cap also reaches net winners and net losers. Win $50,000 and lose $30,000 in 2026: the deduction falls from $30,000 to $27,000, so taxable gambling income rises from $20,000 to $23,000. Win $200,000 and lose $210,000: only $189,000 is deductible, so $11,000 is taxable even though you lost $10,000 in cash. The table below assumes you itemize in both years.

When does the 90% cap not change my bill?

The 90 percent cap does not change your bill when 90 percent of your losses is already at least your winnings, which means losses of roughly 111 percent of winnings or more. Win $50,000 and lose $80,000 in 2026: 90 percent of losses is $72,000, the deduction is limited to the $50,000 of winnings, and taxable gambling income is $0, the same as in 2025.

Below that line the cap always costs something. Even a clear net winner who won $50,000 and lost $30,000 loses $3,000 of deduction. The damage is largest where winnings and losses are both large and close together: a break-even year, a year with a small profit, or a year with a small loss. That is the pattern of high-volume sports bettors, poker players who reinvest what they win, and slot players with a big W-2G year, and it is why gross winnings and gross losses, not your net result, drive the number.

Do I owe tax on all my winnings if I take the standard deduction?

If you take the standard deduction, you deduct no gambling losses and pay tax on the full amount of your winnings. A gambler who wins $50,000 and loses $50,000 in 2026 and does not itemize reports $50,000 of income and offsets none of it, which is far worse than the $5,000 of phantom income an itemizer faces. This trap is not new; it worked the same way in 2025.

For tax year 2026 the standard deduction is $16,100 for single filers and married persons filing separately, $32,200 for married couples filing jointly and $24,150 for heads of household (IRS Revenue Procedure 2025-32).^[7] Itemizing pays only when your Schedule A total, including 90 percent of your gambling losses, exceeds those figures. A break-even year with $50,000 of losses almost always clears that bar on its own; a break-even year with $8,000 of losses may not, and then the whole $8,000 of winnings is taxed. Our page on whether you can deduct gambling losses walks through the Schedule A mechanics.

Why do gross winnings matter even when I broke even?

Winnings go into adjusted gross income in full; losses come off later, on Schedule A. Anything keyed to AGI or to modified AGI, such as the taxable share of Social Security benefits, Medicare income-related premium adjustments and income-based credit phase-outs, sees the gross $50,000, not the $5,000 net.

Social Security is the clearest case. IRS Publication 915 compares one-half of your benefits plus all your other income against a base amount of $25,000 for a single filer ($32,000 married filing jointly); above $34,000 ($44,000 joint) up to 85 percent of benefits become taxable.^[8] A single retiree with $24,000 of benefits and no other income has a comparison figure of $12,000 and pays no tax on the benefits. Add $50,000 of gross gambling winnings, even in a year the retiree broke even, and the figure becomes $62,000, so up to 85 percent of the benefits, $20,400, is taxable on top of the $5,000 of phantom income.

State returns follow their own rules. New Jersey nets gambling winnings and losses on its own return without regard to federal itemizing, and California has not conformed to the 2025 federal changes; New York had not addressed the question when we last checked. See our New Jersey, California and New York pages, or the state-by-state index.

Does the 90% rule apply to professional gamblers?

Yes, and it reaches further. Under section 165(d)(2), any deduction otherwise allowable for carrying on a wagering transaction, such as travel, tournament entry fees and other business expenses of a professional, counts as a loss from wagering transactions, so those expenses and the wagering losses together are limited to 90 percent and to the year's gains.^[1] Whether someone is a professional is decided under Commissioner v. Groetzinger, 480 U.S. 23 (1987): gambling is a trade or business when it is “pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby.”^[10]

What counts as winnings and losses?

Your Forms W-2G are not your winnings total. A W-2G reports single payouts that cross a threshold, and it has no box for losses. For payments made in 2026 the threshold for slot machines, bingo and keno is $2,000, up from $1,200 for slots and bingo and $1,500 for keno in 2025; other wagers are reported when the payout is at least 300 times the wager.^[4] Everything you won below those lines is still income.

For slot and table play the IRS Office of Chief Counsel has described a session approach, under which a player's gain or loss is measured per session rather than per pull or per hand, which changes the gross winnings and gross losses that the 90 percent cap is applied to.^[5] Our session method page explains it, and our guide to how gambling tax documents reconcile shows how W-2Gs, win/loss statements and the IRS transcript fit together.

Married couples: proposed regulation 1.165-10(b), published April 17, 2026 (REG-113229-25), would allow 90 percent of the spouses' combined losses on a joint return, only to the extent of their combined gains, for taxable years beginning after December 31, 2025. It is proposed, not final; comments closed June 16, 2026.^[9]

Will Congress repeal the 90% rule before I file?

If a repeal is enacted after you have already filed a 2026 return under the 90 percent rule, the return can be amended to claim the difference. Until then, prepare on the law as written.

What records does the IRS expect?

Topic 419 says that to deduct your losses you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements or other records.^[2] Publication 529 lists what the diary should hold: the date and type of your specific wager, the name and address or location of the gambling establishment, the names of other persons present with you, and the amounts you won or lost. Supporting proof includes Forms W-2G and 5754, wagering tickets, canceled or substitute checks, credit records, bank withdrawals, and statements of actual winnings or payment slips from the establishment.^[3]

Under the 90 percent rule a documented dollar of loss is worth 90 cents of deduction; an undocumented dollar is worth nothing. Start a session log now, and if you play at a casino without a players card, read why there will be no win/loss statement for that play.

What should I do before filing my 2026 return?

1. Get every win/loss statement and every W-2G. One per sportsbook, casino and poker site, for calendar year 2026. Your IRS wage and income transcript lists every W-2G filed in your name.
2. Total gross winnings and gross losses separately. The cap is applied to gross figures, so a net number is not enough.
3. Compare itemizing with the standard deduction. Add 90 percent of losses to your other Schedule A items and see whether the total beats $16,100, $32,200 or $24,150.
4. Run the numbers before the year ends. The calculator gives the 2025, 2026 and 2027 result, and a preparer can plan estimated payments around it.

We reconcile every statement, W-2G and transcript line into one workpaper so the taxable and phantom-income figures are computed, not estimated; see a sample file or how it works for players.

Frequently asked questions

If I won $50,000 and lost $50,000 gambling in 2026, do I owe tax?

Yes. If you itemize, you deduct $45,000 (90% of $50,000) and pay tax on $5,000 of phantom income; at a 32% marginal rate that is $1,600. If you take the standard deduction, you pay tax on the full $50,000.

What is phantom income in gambling?

Phantom income is taxable gambling income that exists only because 26 U.S.C. 165(d), for tax years beginning after December 31, 2025, allows a deduction for 90% of losses, capped at winnings. Break even at $100,000 and you owe tax on $10,000 you never kept.

When does the 90% gambling loss rule start?

It applies to taxable years beginning after December 31, 2025, so the first return affected is the 2026 return filed in early 2027 (Public Law 119-21, section 70114). A 2025 return filed in 2026 still deducts losses up to 100% of winnings, if you itemize.

Does the 90% cap matter if I lost more than I won?

Only if your losses are less than about 111% of your winnings. Win $200,000 and lose $210,000 and only $189,000 is deductible, so $11,000 is taxable despite a $10,000 cash loss. Win $50,000 and lose $80,000 and 90% of losses ($72,000) already exceeds winnings, so the deduction is $50,000 and taxable gambling income is $0.

Do I owe tax on all my gambling winnings if I take the standard deduction?

Yes. Gambling losses are deductible only on Schedule A, so a standard-deduction filer who wins $50,000 and loses $50,000 reports $50,000 of income and deducts nothing. That was true in 2025 and is true in 2026; the 2026 standard deduction is $16,100 single, $32,200 married filing jointly and $24,150 head of household.

Has Congress repealed the 90% rule?

Not as of September 28, 2026. On September 16, 2026 the House Ways and Means Committee voted 38-5 to advance H.R. 10357 carrying language that restores the full deduction for 2026, but no House floor vote is expected before the November 2026 elections, the Senate has not acted, and nothing is enacted.

Does the 90% limit apply to professional gamblers?

Yes. Amended section 165(d)(2) treats otherwise-deductible expenses of carrying on wagering, such as travel and entry fees, as losses from wagering transactions, so a professional's expenses and losses together are limited to 90% and to winnings.

How do married couples apply the 90% limit on a joint return?

Proposed regulation 1.165-10(b) (REG-113229-25, April 17, 2026) allows 90% of the spouses' combined gambling losses, only to the extent of their combined gambling gains, for taxable years beginning after December 31, 2025. It is proposed, not final.

Sources

1. 26 U.S.C. § 165(d), Wagering losses, as amended by Pub. L. 119-21 § 70114 (Legal Information Institute) (amendment effective for taxable years beginning after December 31, 2025)
2. IRS Tax Topic 419, Gambling income and losses (page last reviewed June 11, 2026)
3. IRS Publication 529, Miscellaneous Deductions, Gambling losses up to the amount of gambling winnings (Rev. December 2020)
4. IRS Instructions for Forms W-2G and 5754 (Rev. January 2026)
5. IRS Office of Chief Counsel, AM 2008-011, Reporting of wagering gains and losses (December 12, 2008)
6. Congress.gov, H.R. 1 (Public Law 119-21, One Big Beautiful Bill Act), text, section 70114 (signed July 4, 2025)
7. IRS, IR-2025-103, tax inflation adjustments for tax year 2026 (Revenue Procedure 2025-32) (October 9, 2025)
8. IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits (tax year 2025 edition)
9. Federal Register, REG-113229-25, proposed regulations on information reporting thresholds and wagering losses (proposed Reg. 1.165-10) (April 17, 2026)
10. Commissioner v. Groetzinger, 480 U.S. 23 (1987) (Legal Information Institute) (decided February 24, 1987)
11. Covers, House committee advances repeal of 90 percent gambling loss deduction limit (September 16, 2026)
12. CPA Practice Advisor, Bill to reverse change made to gambling tax code advances in House (September 24, 2026)
13. Yogonet, House committee advances measure to restore full gambling loss tax deduction (September 17, 2026)
14. GovInfo, H.R. 4304, Fair Accounting for Income Realized from Betting Earnings Taxation Act, as introduced (introduced July 7, 2025)