Can you still deduct lottery losses in 2026? Yes — but only 90% of them. A provision of the One Big Beautiful Bill Act (OBBBA) took effect on January 1, 2026 and cut the gambling-loss deduction from 100% of losses to 90%, while keeping the old rule that losses can never exceed winnings. The result is a tax bill on money you never kept — what accountants have started calling phantom income. Here's the math, who it actually hits, and why most lottery players will never notice.
What changed on January 1, 2026
Gambling losses have always been deductible only as an itemized deduction, and only up to the amount of your gambling winnings. The OBBBA added a second haircut on top: beginning with tax year 2026, you may deduct just 90% of your documented losses.
| Scenario | Tax year 2025 | Tax year 2026 |
|---|---|---|
| Winnings reported | $50,000 | $50,000 |
| Documented losses | $50,000 | $50,000 |
| Deductible losses | $50,000 | $45,000 |
| Taxable gambling income | $0 | $5,000 |
That last row is the whole story. A player who broke exactly even in 2025 owed nothing. The same player breaking even in 2026 reports $5,000 of income that never existed in their bank account.
The phantom-income problem, in one example
Say you spend $10,000 on lottery tickets across the year and win $7,500 back. You are down $2,500 in real money. Under the pre-2026 rules you could deduct $7,500 of losses against $7,500 of winnings and owe nothing. Under the 2026 rules your deduction is capped at 90% of $7,500 — $6,750 — so $750 becomes taxable income despite a losing year. The bigger your volume, the bigger the ghost: a high-volume player cycling $500,000 through wins and losses now reports $50,000 of income out of thin air.
Does this actually affect lottery players?
For the overwhelming majority of ticket buyers: no, and the reason is the standard deduction, not the new rule. Gambling losses are deductible only if you itemize on Schedule A. Roughly nine in ten filers take the standard deduction instead, and for them losing lottery tickets have never been worth anything at tax time. Nothing about that changed in 2026.
The 90% limit bites a narrower group:
- Anyone with a big reportable win. A $200,000 prize can push you into itemizing for the year — and that's exactly the year the 10% haircut applies.
- High-volume players of any kind: sports bettors, poker players, daily-fantasy and casino regulars, and lottery players who buy heavily and cash frequently.
- Professional gamblers filing on Schedule C, who face the same 90% limit on losses.
The rule applies to gambling in general — casino play, sports betting, poker, horse racing and lottery tickets all sit in the same bucket under IRS Topic 419.
What it does not change
- Losses still can't exceed winnings. You cannot generate a net loss from gambling. If you won $1,000 and lost $40,000, your deduction ceiling is $1,000 — now further reduced to $900.
- Withholding is untouched. Lottery prizes over $5,000 still have 24% withheld up front, and the top federal rate is still 37% at filing. See our jackpot tax breakdown.
- State rules are separate. Several states never allowed a gambling-loss deduction at all, and a handful don't tax lottery prizes in the first place — the full picture is in lottery tax rates by state.
What to do about it
Recordkeeping went from good practice to real money. The IRS expects a contemporaneous log — dates, game, location, amounts won and lost — backed by tickets, statements, or app history. If you play through a state iLottery account or a courier app, your transaction history is already a usable ledger; export it before the year closes.
Two planning notes worth raising with a tax pro. First, if a big win is coming, the year you claim it is the year the 90% cap matters most — and the timing of a claim is partly under your control, given the claim windows most states allow. Second, taking a jackpot as an annuity spreads reportable winnings across decades rather than concentrating them, which changes the arithmetic (see lump sum vs annuity).
Will it be repealed?
Possibly. The provision drew immediate bipartisan pushback, and bills to restore the full 100% deduction have been introduced, with reporting through 2026 suggesting the White House is open to a change. Nothing has passed as of this writing, so 2026 returns filed in early 2027 are governed by the 90% rule. We'll update this page if that changes.
Meanwhile, the smaller-stakes rules that catch most players — the $600 reporting line, the $5,000 withholding line, and Form W-2G — are unchanged and explained in taxes on small lottery winnings.
Play responsibly — 1-800-GAMBLER. Nothing here is individual tax advice; talk to a CPA about your own return.