What changed in 2026?
Gambling losses have long been deductible only as an itemized deduction, and only up to the amount of your gambling winnings. The One Big Beautiful Bill Act, signed on July 4, 2025, added a second limit. Section 165(d) of the tax code now says the deduction "shall be equal to 90 percent of the amount of such losses" and is allowed "only to the extent of the gains." The change applies to tax years beginning after December 31, 2025, so it first shows up on the 2026 returns people file in early 2027.
Both limits apply, in order. Take 90% of your losses, then cap that figure at your winnings.
| Same player, same results | Tax year 2025 | Tax year 2026 |
|---|---|---|
| Gambling winnings | $50,000 | $50,000 |
| Documented losses | $50,000 | $50,000 |
| Deductible losses | $50,000 | $45,000 |
| Taxable gambling income | $0 | $5,000 |
A player who broke exactly even in 2025 reported no net gambling income. Doing the same in 2026 leaves $5,000 taxable, even though none of it was kept.
What is gambling "phantom income"?
It's the name tax writers have given to that taxable leftover in a year when you didn't come out ahead. It appears only when your losses are close to, or not far above, your winnings.
Take someone who wins $7,500 over the year and has $7,500 of documented losses. Before 2026 the whole $7,500 was deductible. Now 90% of $7,500 is $6,750, so $750 becomes taxable income on a break-even year.
Now take someone who wins $7,500 and loses $10,000. Ninety percent of $10,000 is $9,000, which is still above the $7,500 of winnings, so the cap at winnings is what binds and the full $7,500 is deductible. In general, your losses need to be at least about 111% of your winnings (winnings divided by 0.9) before the new rule stops costing you anything.
The effect scales with volume. A bettor with $500,000 of winnings and $500,000 of losses now reports $50,000 of income.
Does the 90% rule affect lottery players?
For most ticket buyers, no, and that's because of the standard deduction rather than anything in the new law. Gambling losses only count if you itemize, and most filers don't. If you take the standard deduction, losing tickets were never worth anything at tax time and still aren't.
The people the change does reach:
- Players with a large win in a year when itemizing makes sense. State income tax on the prize and the losses you can document may tip you into itemizing, and that is the year the 10% haircut applies.
- High-volume players whose wins and losses roughly offset: sports bettors, poker and casino regulars, and heavy lottery players who cash many small prizes.
- Professional gamblers who file on Schedule C. Section 165(d) counts their business expenses as wagering losses, so the 90% limit applies to those too.
The rule covers all wagering. IRS Topic 419 lists lottery tickets alongside raffles, sports betting, horse racing and casino games as gambling income, and losses from any of them go in the same calculation.
What the rule doesn't change
You still can't create a net gambling loss. If you won $1,000 and lost $40,000, you can deduct $1,000. The 90% figure ($36,000) is far above your winnings, so it doesn't reduce that $1,000 at all.
Withholding is the same as before. A lottery prize where the winnings minus the wager are more than $5,000 still has 24% federal tax withheld when you claim it, and the top federal rate at filing is still 37%. Our jackpot tax breakdown works through the numbers.
State rules are separate. Some states don't allow a gambling-loss deduction at all, and some don't tax lottery prizes. See lottery tax rates by state.
What records do you need to deduct lottery losses?
The IRS says you need an accurate diary or similar record of your winnings and losses, plus receipts, tickets, statements or other documents showing the amounts. In practice that means the date, the game, where you played, and how much you won or lost each time. If you buy through a state iLottery account or a courier app, the transaction history already does most of this; download it before the year ends in case the account later limits how far back you can see.
Two timing points are worth raising with a tax professional if you're holding a sizable winning ticket. The year you claim a prize is the year its income lands, and most states give you months to claim (see claim deadlines). And choosing a jackpot annuity spreads the income over decades instead of one year, which changes the arithmetic (see lump sum vs annuity).
Will the 90% gambling loss rule be repealed?
Congress is considering it, but nothing has changed the law yet. Several bills to restore the full deduction were introduced in 2025 and 2026. The furthest along is H.R. 10357, the Digital Asset Tax Certainty Act, which the House Ways and Means Committee approved 38–5 on September 16, 2026 with language restoring the deduction for gambling losses. It still needs a vote of the full House, passage in the Senate and the president's signature.
As of early October 2026, Section 165(d) still says 90 percent. If you're planning around 2026 gambling results, assume the 90% rule applies unless a new law says otherwise, and check again before you file.
What else changed for lottery taxes in 2026?
The Form W-2G reporting line moved. According to the IRS instructions for Form W-2G, the minimum reporting threshold for payments made in 2026 is $2,000, up from $600, and it is indexed for inflation from here on. The 24% withholding line didn't move. A prize under the reporting threshold is still taxable income; it just won't come with a form. The details are in the $2,000 W-2G threshold and taxes on small lottery winnings.
Lottery loss deduction questions
Can you still deduct lottery losses in 2026?
Yes, but only 90% of documented losses, and only if you itemize on Schedule A. The deduction also can't exceed your gambling winnings for the year.
What is phantom income from gambling in 2026?
It's taxable gambling income in a year you didn't actually come out ahead. With $50,000 of winnings and $50,000 of losses, only $45,000 is deductible, so $5,000 is taxed even though you broke even.
Does the 90% gambling loss rule apply to lottery tickets?
Yes. It covers all wagering losses, including lottery tickets and scratch-offs. It only matters if you itemize; with the standard deduction, losing tickets were never deductible.
Do you need receipts to deduct lottery losses?
Yes. The IRS expects a diary or similar record of wins and losses, backed by tickets, statements or account histories. Losses you can't document can be disallowed.
Has Congress repealed the 90% limit?
Not as of early October 2026. A bill restoring the full deduction cleared the House Ways and Means Committee in September 2026, but it has not passed the House or Senate.
This page explains the federal rule in general terms and isn't tax advice for your situation; a CPA or enrolled agent can run your own numbers.
Sources: 26 U.S.C. §165(d) and its effective-date note (Pub. L. 119-21, §70114); IRS Topic 419; 2026 Instructions for Form W-2G; House Ways and Means Committee, September 16, 2026.
