By Tim Grant
Pittsburgh Post-Gazette
(TNS)
Winning at the casino was already hard enough. This year, the tax code makes it even harder.
A change in federal tax law taking effect this year could leave some gamblers owing taxes even when they lose money by limiting how much they can deduct in losses when they file their tax returns.
For years, taxpayers who itemized could offset gambling winnings with an equal amount of losses. It was a dollar-for-dollar deduction that at least softened the blow when luck ran out.
That rule is now changing.
Beginning this tax year, gamblers can deduct only 90% of their losses against their winnings of their federal tax returns. The result is some taxpayers could end up paying taxes on money they never actually kept—or even on money they ultimately lost.
“A lot of people now are gambling online. You can do all kinds of gambling online,” said tax accountant Howard Davis, CPA, owner of Davis, Davis & Associates in Pittsburgh’s Strip District.
Mr. Davis said he has several clients who gamble heavily, including one who cycles about $1 million in winnings and $1 million in losses in a typical year. Under the old rules, the numbers largely canceled each other out.
Not anymore.
“I told him he’s going to have to quit,” Mr. Davis said.
“If he loses $1 million, he can only write off $900,000, and he will have a $100,000 gain in phantom income because you can only write off 90% of losses,” Mr. Davis said.
Keeping track of gambling activity
In other words, the taxpayer could owe federal income tax despite breaking even—or worse—at the casino.
The shift comes at a time when gambling opportunities are expanding rapidly across the country. From casino floors and racetracks to state lotteries, to the booming industry of online sports betting and digital casinos, gamblers have more ways than ever to place wagers.
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Many online gambling platforms make tax reporting relatively simple by issuing annual statements summarizing total winnings and losses.
But keeping track of gambling activity in the physical world can be far messier—especially for people placing dozens or hundreds of small bets at blackjack tables, slot machines, roulette wheels or horse tracks.
That can make accurately documenting losses a challenge, even before the new federal limitation comes into play.
“What’s interesting about the changes in the law is that it’s possible to suffer an economic loss but still have taxable income,” said Lucas Rihely, CPA, a partner at H2R CPA in Green Tree.
He offered an example: A taxpayer with $25,000 in winnings and $26,000 in losses would have previously reported no taxable gambling income.
Under the new rule, however, the taxpayer can deduct only $23,400—or 90% of the losses—leaving $1,600 in taxable income from wagering activity, even though the gambler actually lost money overall.
One bit of good news for gamblers in Pennsylvania: The change applies only to federal taxes.
The state still allows taxpayers to deduct 100% of their gambling losses against winnings when filing their Pennsylvania income tax returns.
That offers some relief for people who occasionally strike it lucky.
“We do not have a lot of clients that are professional gamblers, but a good number who occasionally get lucky and hit the lottery or have good luck at the casino or sports betting,” said Elizabeth “Li” Connolly, CPA, a partner at Connolly Steel & Co. in Avalon.
IRS assumes winnings stand alone
Still, tax professionals say documentation matters—more than some people realize.
Mr. Davis said he has a client who claimed $10,000 in scratch-off winnings from the Pennsylvania Lottery this year, but ended up paying taxes on the full amount. That’s because she hadn’t kept any of her losing tickets to prove she had losses to offset the winnings.
Without any record of losses, the Internal Revenue Service assumes the winnings stand alone.
And sometimes the IRS wants to see proof.
Years ago, Mr. Davis represented a client who gambled regularly at The Meadows Racetrack and Casino. The gambler reported that his earnings and losses essentially cancelled each other out.
But the IRS wasn’t convinced and opened an audit.
“What would you believe I had to do?” Mr. Davis said with a laugh. “I had to take a box of his losing tickets down to the IRS office on Grant Street to prove that he had those losses.”
The tickets had to be legitimate too.
“You can’t have it where there’s footprints on them like you picked them up off the ground,” Mr. Davis said.
Fortunately for the client, he had kept meticulous records.
“So he didn’t owe any tax because he had all the tickets to prove his losses.”
Photo credit: mbbirdy/iStock
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© 2026 the Pittsburgh Post-Gazette. Visit www.post-gazette.com. Distributed by Tribune Content Agency LLC.
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