A player who wins $100,000 and also loses $100,000 in a given year is now liable for federal taxes on a $10,000 amount they never actually keep. This is due to the 90% cap on gambling loss deductions that will take effect starting with the 2026 tax year. Notably, the venues that are competing most vigorously against licensed sportsbooks do not seem to be clearly affected by this cap.
We spoke with John Isaac, the Editor at online-gambling.com, who specializes in US gambling law, as well as regulations in the Indian and Dutch markets. He sheds light on why the public hearing in July did not lead to any definitive resolutions, the current status of the repeal efforts, and why this tax gap should concern operators more than players.
**TheGamblest:** Thank you for being here, John. First off, can you clarify what the 90% cap actually changes for someone who breaks even?
**John:** It’s all about the math. Previously, players who itemized their deductions could offset losses with any winnings reported, meaning a break-even year resulted in no federal tax burden. However, the One Big Beautiful Bill Act, signed into law in July 2025, caps those deductions at 90% starting with the 2026 tax year.
So, for instance, if someone wins $100,000 and loses $100,000, they still declare $100,000 in winnings as income, but can only offset $90,000 of that against their losses. Consequently, the remaining $10,000 is taxable as income even though the player essentially broke even. The difficulty lies in the fact that this law measures volume, not profit, adversely impacting frequent players whose accounts reflect large amounts on both sides.
**TheGamblest:** There was a public hearing regarding these rules in July. Why didn’t that resolve the issue?
**John:** The hearing focused on the wrong aspect. It discussed proposed regulations that detailed how the cap would be enforced and raised reporting thresholds for slot and bingo winnings. Every participant, including Representative Dina Titus, the American Gaming Association, and tax experts, opposed the cap. However, the 90% figure is embedded in the statute itself, meaning the agency drafting the regulations has no power to amend it. Only Congress can change that.
Additionally, federal tax is just one aspect; changes in state taxes are also affecting operator economics simultaneously, complicating matters as players contend with varying regulations in different states.
**TheGamblest:** What’s the current status of the repeal effort?
**John:** Progress has been slower than supporters anticipated. After the law passed, Titus promptly introduced the FAIR BET Act, aimed at restoring the full deduction, which garnered bipartisan support and was sent to the Ways and Means Committee. Shortly after, the FULL HOUSE Act, proposed by Max Miller and Steven Horsford, was introduced as well. However, neither bill has reached a floor vote.
Procedural attempts at advancement have also stalled. A unanimous consent request in the Senate was blocked in 2025, and the House Rules Committee chose not to attach the repeal to the defense authorization bill in January. Titus has now filed a discharge petition to expedite the bill, highlighting the limited options remaining.
There’s also considerable opposition; for instance, Senator James Lankford has labeled this a relatively minor change in tax policy, which represents a sentiment that persists.
**TheGamblest:** You’ve suggested that the cap creates a distinction between sportsbooks and prediction markets. Can you explain that?
**John:** It all comes down to gross versus net income. Prediction markets and sportsbooks are inherently different in their operational structure and regulatory oversight, and the tax implications compound this difference. Gambling winnings are taxed on a gross basis, making the 90% cap particularly burdensome. In contrast, event contracts bought and sold on CFTC-regulated platforms are regarded as financial instruments. If they were subject to Section 1256 of the tax code, bettors would report net results annually, allowing for loss deductions and a set division for long versus short-term results.
That said, caution is needed. The IRS has not issued any rulings or clarifications on the taxation of prediction market contracts, and professionals in the field consider highlighting Section 1256 treatment as a somewhat aggressive stance. Some platforms lack even transaction-level statements.
The crucial point is the uncertainty this creates. A high-volume bettor faces a definite penalty from one kind of market while navigating vague rules in another.
**TheGamblest:** How has this situation affected your work as an editor?
**John:** It has shifted priorities. Tax implications used to be secondary on our state pages, buried beneath topics like bonuses and payment methods, but now it is a primary concern for our readers. Consequently, we’ve moved filing and record-keeping discussions closer to the forefront of our content.
Our tone has also shifted. We tend to highlight what we cannot definitively answer, especially questions about whether a prediction market position is considered a capital gain or gambling income, which is contingent on individual circumstances. Pretending otherwise serves no purpose.
**TheGamblest:** You mentioned operators might have more to worry about than players. Can you elaborate?
**John:** The concentration of risk lies within the clientele that operators are keenest to retain—high-volume or professional players who can generate substantial reported winnings and losses. These players face tax liabilities that do not accurately reflect their actual earnings.
These individuals are also the most mobile; they tend to move to markets that offer better tax treatment. As Titus pointed out when she introduced her bill, the cap risks driving players towards offshore and unregulated sites, erasing the revenue the law was intended to bring in.
**TheGamblest:** What steps should operators and affiliates be taking as the first filing season approaches?
**John:** They should start with ensuring players have access to clear statements. Players now genuinely need session-level data for accurate tax filing, so any platform complicating data export will likely receive significant pushback this spring.
Furthermore, tax should no longer be a mere footnote in customer communications. It has become integral to the cost of playing and must be addressed alongside pricing and payment options, rather than hidden on a seldom-visited help page.
The more challenging aspect is to engage sincerely with comparisons to prediction markets instead of sidestepping the discussion. Customers are already becoming aware of these tax gaps through financial media, which may overlook gambling coverage, so operators who ignore the issue run the risk of appearing uninformed.
**TheGamblest:** Lastly, how do you foresee this playing out a year from now?
**John:** I expect the cap will remain in place, as current legislative processes indicate no likelihood of change. The upcoming filing season will illustrate how real this issue has become for people—nothing influences opinion like concrete numbers on a tax return.
The more pressing question is whether the IRS will release any guidance regarding prediction markets before then. If unfavorable guidance emerges, this would close the gap and eliminate the competitive issue. However, if the silence continues, licensed operators may face another year of disadvantage stemming from a circumstance they did not create.
My advice remains consistent: maintain detailed records, seek professional tax advice prior to filing, and stake only what you can afford to lose—principles that hold true no matter what Congress decides.
