Key Moments:
- A new tax rule limits gamblers to deducting only 90% of losses against winnings, leaving 10% potentially taxable even in losing years.
- Meanwhile, efforts by Nevada lawmakers to overturn the rule stalled earlier this year and are unlikely to resume this session.
- Slot wins of $2,000 or more, poker profits above $5,000 after buy-in, and bets paying 300 times the wager trigger IRS reporting via W-2G forms.
Gambling Loss Deductions Tightened Under New Rule
For decades, U.S. tax law allowed gamblers to fully offset winnings with losses, ensuring taxes applied only to real profits. However, that framework has now changed. Under a new rule, players can deduct only 90% of gambling losses against winnings. As a result, even gamblers who lose money overall may still owe taxes on the remaining 10%.
Lawmakers from Nevada, a state deeply tied to gaming revenue, pushed to reverse the change. They argued that the rule taxes money gamblers never truly had. However, those efforts lost momentum in Washington earlier this year. As things stand, Congress is not expected to revisit the issue this session.
House Advantage Meets Higher Tax Exposure
Casino games are designed to favor the house, so most players lose money over time. In fact, estimates suggest only about one in ten gamblers finishes a typical year with a profit. On the Las Vegas Strip, slot machines return roughly $0.92 for every dollar wagered, leaving the rest with the casino.
Because of the new tax rule, players may now owe taxes even when losses are the expected outcome. Consequently, the built-in house edge becomes even more costly for frequent gamblers.
How Gambling Winnings Are Reported
The IRS tracks gambling income through specific reporting thresholds that require casinos to notify tax authorities. These triggers include:
| Type of Gambling | Reporting Threshold | IRS Form |
|---|---|---|
| Slot or Bingo Wins | $2,000 or more | W-2G |
| Poker Tournament Profits (after buy-in) | Above $5,000 | W-2G |
| Sports and Parimutuel Bets | At least 300x the wager | W-2G |
Smaller wins remain taxable but often go unreported due to missing documentation. Importantly, the IRS does not use casino loyalty card data for enforcement, and players are not required to use those programs. Therefore, many casual gamblers never report minor winnings.
Why Losing Players May Still Owe Taxes
Previously, gamblers who itemized deductions could subtract all losses from winnings. For example, someone who won $2,500 but lost $3,000 owed no tax. Now, only 90% of losses qualify. If a player wins $2,500 and loses $3,000, just $2,700 of losses count, leaving taxable income despite an overall loss.
Because of this change, proper documentation matters more than ever. The IRS requires detailed personal logs or casino-issued statements. Without them, it may reject claimed deductions.
Compliance Gaps Among Big Winners
Despite clear reporting rules, tax compliance remains weak among high-value winners. A federal watchdog found that tens of thousands of individuals with more than $15,000 in gambling winnings failed to file returns over a recent three-year period. As a result, over $13 billion in winnings went unreported, along with roughly $1.4 billion in unpaid federal taxes.
Notably, these cases involved winnings already known to the government through mandatory reporting. Meanwhile, the true impact of small, undocumented wins remains unclear.
Tax Rules Clash With Gambling Reality
The deduction cap highlights a growing disconnect between tax policy and how gambling actually works. Most players lose, and wins tend to be short-lived. Even so, a losing year can now produce a tax bill.
While casinos continue to profit from the house advantage, the IRS also stands to gain under the new rule. In many cases, that gain comes at the expense of players who never finished ahead.
- Author
Daniel Williams
