Major gambling tax changes in the One Big Beautiful Bill Act: What US citizens, expats, and non-residents need to know
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act, a sweeping piece of legislation with far-reaching tax implications.
Hidden within the larger bill is a dramatic shift in how gambling losses are treated for tax purposes – one that could significantly impact US gamblers, professional players, expats, and non-resident aliens alike.
Starting January 1, 2026, the IRS will limit the deduction of gambling losses to 90% of winnings. For many taxpayers – especially those who rely on itemized deductions – this change could mean paying taxes on “phantom income.”
What changed: A new limit on gambling loss deductions
Previous rule (through 2025)
Under current tax law, taxpayers can deduct 100% of gambling losses (but only up to the amount of their gambling winnings).
This ensures that individuals who break even or lose money aren’t taxed on income they never really made.
New rule (starting 2026)
Beginning in 2026, the IRS will only allow up to 90% of gambling losses to be deducted against gambling winnings.
That means even a break-even year can trigger a taxable gain on paper.
Example:
- Winnings: $500,000
- Losses: $500,000
- Old rules (through 2025): No taxable income
- New rules (2026 onward): Only $450,000 of losses deductible → $50,000 taxable income
This new provision was added by the Senate Finance Committee during final negotiations and is expected to raise about $1.1 billion in federal revenue over 10 years, according to the Joint Committee on Taxation.
Why this matters: Winners and losers under the new rules
High-volume and professional gamblers take the biggest hit
Professional gamblers, such as poker players, sports bettors, and day-trading-style gamblers, often operate with thin profit margins. The new 90% cap disproportionately affects them.
Example:
- Winnings: $5.2 million
- Losses: $5 million
- Real net gain: $200,000
- Taxable gain under new law: $700,000
- Effective tax increase: 250%
As Phil Galfond, a professional poker player, explained:
“You’d make $200,000, but pay taxes as if you made $700,000.”
Recreational gamblers may also feel the pinch
Even part-time gamblers who play regularly may find themselves with taxable income despite breaking even – especially those who travel to casinos, enter poker tournaments, or bet on sports frequently.
Special concerns for US expats and non-resident aliens
US expats: Extra complexity, fewer benefits
US citizens living abroad must still report worldwide income on their federal tax return – including gambling winnings from US visits or international travel.
Here’s what the new rules mean for them:
- “Phantom income” risk: Expats who break even or win modestly may still owe taxes due to the 90% loss cap.
- Foreign Tax Credit limitations: In many cases, foreign countries don’t tax gambling income – so there's no foreign credit to apply, even when the US imposes tax.
- Currency complications: Winnings and losses from US gambling must be reported in USD, requiring currency conversion.
- Standard vs. itemized deduction dilemma: With the reduced value of gambling losses, itemizing may no longer be worthwhile for many expats.
Non-resident aliens: Almost no recourse
For non-residents who gamble while visiting the US, the situation is even more challenging.
- No standard deduction: They must itemize using Form 1040-NR to deduct losses – but only US-sourced losses.
- Stuck with the 90% cap: Just like US citizens, non-residents can only deduct 90% of their losses.
- No refund if net losses: A losing year may still result in a tax bill – even with no net gambling profit.
Tax treaty alert: Some countries (e.g., the UK, Germany) have tax treaties with the US that allow residents to deduct gambling losses – but this doesn’t override the 90% cap.
Other notable gambling-related provisions in the bill
Not all gambling-related changes in the bill are punitive.
One change supported by the American Gaming Association will raise the IRS reporting threshold for slot machine winnings from $600 to $2,000, reducing interruptions for players.
What this means:
- Fewer W-2G forms filed
- Less hassle for casual players
- More continuous play at slot machines
How to prepare: Tax strategies and recordkeeping
With the new rules taking effect in 2026, gamblers – especially expats and high-volume players – should begin planning now.
Here’s how:
1. Keep bulletproof records
The IRS expects detailed documentation of all gambling activity:
- Win/loss logs (daily or session-based);
- Casino or sportsbook statements;
- Receipts, tickets, and betting slips;
- Travel expenses (if part of a professional gambling routine);
- Bank and credit card records tied to gambling activity.
2. Know where to report it
- Winnings: Report on Form 1040, line 8b (or 1z in newer forms).
- Losses: Deduct on Schedule A, Line 16 – but only if itemizing.
- Non-residents: Use Form 1040-NR, with relevant attachments.
3. Consult a tax advisor
For complex or high-dollar gambling activity, it’s essential to work with a tax professional who understands:
- IRS gambling rules;
- Itemized deduction strategy;
- US expat tax reporting;
- Tax treaties and Form 8833 filings (for treaty benefits).
Final thoughts: New rules, higher risk – especially for those abroad
The gambling loss deduction cap is a small provision in a large bill – but it carries huge implications for anyone who gambles regularly or professionally.
For US expats and non-resident aliens, the consequences can be even more severe, thanks to limited deduction access and international tax complexity.
Starting now, gamblers should document every dollar, understand their deduction rights, and consult experienced advisors to avoid paying taxes on income they never truly earned.
