A player who wins $100,000 while also losing $100,000 within the same year is now liable for federal taxes on $10,000 of income they never actually retained. The new 90% cap on gambling loss deductions will take effect for the 2026 tax year, yet businesses vying for players against licensed sportsbooks are not uniformly restricted by this rule.
We spoke with John Isaac, Editor at online-gambling.com, who covers gambling laws in the United States as well as in India and the Netherlands. He discussed the ongoing complications from a July hearing, the current state of repeal efforts, and why this tax gap poses a greater concern for operators than for players.
TheGamblest: John, thank you for joining us. To begin, what does the 90% cap change for a player who breaks even?
John: The math tells the story. Until this tax year, a player who itemized could claim losses equal to their reported winnings, meaning a break-even status resulted in no federal tax bill. The One Big Beautiful Bill Act, which was signed into law in July 2025, imposed a cap of 90% on that deduction starting from the 2026 tax year.
Imagine a scenario where someone wins $100,000 and loses $100,000. While all $100,000 in winnings must be reported as income, only $90,000 of their losses can offset it. As a result, they face taxes on $10,000 deemed income, despite the fact that they ended the year with no net gain.
That’s a tough concept for many to grasp. This legislation measures volume, not profit, and impacts those who frequently participate in gambling where both sides of the ledger grow significant.
TheGamblest: In July, the IRS held a public hearing regarding these rules. Why didn’t it lead to any resolutions?
John: The hearing addressed the wrong aspect. It focused on proposed regulations that outlined how the 90% cap will be enforced and raised the reporting threshold for certain gambling winnings. Every attendee opposed the cap, including Representative Dina Titus and the American Gaming Association, along with tax professionals who handle these returns.
However, that opposition didn’t matter procedurally. The 90% limit is written into the statute, meaning the agency drafting the regulations cannot modify it. Only Congress has the power to initiate that change.
It's worth mentioning that federal tax is just one element of the issue, as state taxes are also evolving, which simultaneously impacts operators. Players face additional tax treatments based on their individual states, layered on top of federal mandates.
TheGamblest: What is the status of the repeal efforts?
John: Progress is slower than advocates hoped. Just days after the law passed, Titus proposed the FAIR BET Act, which aims to restore full deductions. This bill has bipartisan support but remains in the Ways and Means Committee without a floor vote. A second proposal, the FULL HOUSE Act from Max Miller and Steven Horsford, came shortly after but has also stalled.
Navigating procedural routes has proven difficult too. In 2025, a unanimous consent request in the Senate was blocked, and the House Rules Committee refused to add the repeal to the defense authorization bill earlier this year. Titus has now filed a discharge petition to push the bill out of committee, indicating the limited avenues available.
There is also considerable opposition. Senator James Lankford has characterized the cap as a somewhat trivial tax policy change, a sentiment that persists.
TheGamblest: You’ve suggested that the cap might increase the divide between sportsbooks and prediction markets. Can you elaborate?
John: The difference comes down to how gains are calculated. Prediction markets and sportsbooks are inherently distinct in their construction and oversight, and taxes introduce another layer. Currently, gambling winnings are taxed based on gross income, which is where the 90% cap has a substantial impact. In contrast, event contracts traded on CFTC-regulated platforms are considered financial instruments. If categorized under section 1256 of the tax code, holders would report net results, allowing for loss deductions and prescribed classifications for gains.
I want to stress that the IRS has yet to issue definitive guidance regarding the taxation of prediction market contracts. Tax professionals often see claiming section 1256 treatment as a risky maneuver, rather than a safe one. Some platforms may not even provide detailed transaction records for this purpose.
Nonetheless, the uncertainty is crucial here. Bettors with high volume transactions now confront a clear penalty on one side of the market while facing ambiguity on the other.
TheGamblest: Has this shifted your editorial focus?
John: Yes, it has adjusted our priorities. Previously, tax information was located towards the end of our state pages, below bonuses and payment options. Now, tax-related queries rank among the first questions we receive, prompting us at online-gambling.com to elevate topics around filing and record-keeping.
The tone has shifted as well. We’re increasingly clarifying the aspects we cannot answer. Tax treatment of prediction market positions—whether they are recognized as capital gains or gambling income—depends on individual circumstances. Pretending otherwise wouldn't help anyone.
TheGamblest: You mentioned operators should be more concerned than players. Can you explain why?
John: The risk primarily lies with the players whom operators strive to retain. Recreational players who do not itemize their taxes will be minimally impacted. High-volume or professional players, on the other hand, can rack up substantial winnings alongside corresponding losses, resulting in taxes owed on amounts that have no relation to actual earnings.
These players are also likely to switch platforms, which is an element that is often underestimated. They carefully scrutinize tax implications and respond accordingly. Titus highlighted this concern when introducing her bill, indicating that the cap may drive players toward unregulated offshore alternatives. If this shift occurs, the anticipated revenue from the measure moves out of the regulated sector as well.
TheGamblest: What actions would you recommend for operators and affiliates prior to the first impacted filing season?
John: Begin with the statements. Session-level data has transitioned from a mere convenience to a necessity for players to file their taxes accurately. Any platform that complicates data export will face complaints this spring.
Operators must also stop treating tax discussions as secondary within customer communications. It fundamentally alters the effective cost of playing and should be discussed alongside pricing and payment methods rather than buried within obscure help pages.
Moreover, operators must engage in honest discussions about the prediction market comparison instead of shying away from it. Customers are already reading about this disparity in financial media, which often does not connect to gambling narratives. An operator who avoids the topic can appear uninformed.
TheGamblest: Lastly, how do you envision this situation a year from now?
John: I expect the cap will still be intact, given current indications. The first filing season under this rule is likely to bring this issue to the forefront for many individuals. Numbers on a tax return can have a more persuasive impact than hearings.
A more intriguing development could occur if the IRS provides guidance on prediction markets before then. If their guidance is unfavorable, it would close the gap and resolve the competition issue. Left unaddressed, regulated operators may endure another year of disadvantage stemming from circumstances beyond their doing.
My advice to players hasn’t deviate: maintain precise records and seek proper guidance before submitting tax filings rather than doing it afterward. Always stake only what you can afford to lose; that principle remains constant, regardless of legislative outcomes.
