Gambling Winnings Taxation and Loss Deduction Rules
Question askedHow does gambling winnings get taxed and how do i deduct losses? What do I need to provide to prove losses and what kind of losses qualify?
Quick answer: For tax year 2025, you must report 100% of your gambling winnings as income, and you can deduct losses only as an itemized deduction on Schedule A, capped at the amount of your winnings — you can't just net winnings and losses together. Starting in 2026, a new rule limits the deduction further, to whichever is less: 90% of your losses or your winnings. You'll need solid records (diary plus supporting documents) to back up any loss claim.
How winnings are taxed
Gambling winnings are fully taxable income. IRS Publication 17 explains that you must report the full amount of your gambling winnings for the year on Schedule 1 (Form 1040), line 8b. This includes more than just cash — Publication 525 notes that winnings from lotteries and raffles are gambling winnings, and in addition to cash winnings, you must include in your income the FMV of bonds, cars, houses, and other noncash prizes. If you receive a Form W-2G, include the amount from box 1 on Schedule 1 (Form 1040), line 8b, and include the amount shown in box 4 on Form 1040 or 1040-SR, line 25c, as federal income tax withheld.
How to deduct losses
Losses are deducted separately as an itemized deduction, not netted against winnings. Publication 17 is explicit: you can't deduct gambling losses that are more than your winnings, and you can't reduce your gambling winnings by your gambling losses and report the difference — you must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. The deduction goes on Schedule A (Form 1040), line 16.
Because this is an itemized deduction, you only benefit if your total itemized deductions exceed the standard deduction — casual gamblers who take the standard deduction get no benefit from losses.
Important 2026 change: Publication 505 states that beginning in 2026, your gambling loss deduction on Schedule A (Form 1040) will be limited to lesser of (1) 90% of your gambling losses or (2) your gambling winnings. This tracks the current statutory text of IRC § 165(d), which now provides that for purposes of losses from wagering transactions, the amount allowed as a deduction for any taxable year shall be equal to 90 percent of the amount of such losses during such taxable year, and shall be allowed only to the extent of the gains from such transactions during such taxable year. So for 2026 returns, even if your losses equal your winnings, you can only deduct 90% of them — the extra 10% is simply lost.
What losses qualify
Publication 529 clarifies that gambling losses include the actual cost of wagers plus expenses incurred in connection with the conduct of the gambling activity, such as travel to and from a casino. Note: nonresident aliens generally can't claim this deduction at all, per Publication 529.
Proof you need
The IRS requires contemporaneous records. Publication 17 says you must keep an accurate diary or similar record of your losses and winnings, containing at minimum the date and type of your specific wager or wagering activity, the name and address or location of the gambling establishment, the names of other persons present with you at the gambling establishment, and the amount(s) you won or lost.
Beyond the diary, Publication 529 recommends supporting documentation: Form W-2G, Certain Gambling Winnings; Form 5754, Statement by Person(s) Receiving Gambling Winnings; wagering tickets; canceled checks; substitute checks; credit records; bank withdrawals; and statements of actual winnings or payment slips provided to you by the gambling establishment. Specific games have their own suggested documentation — for example, for racing, a record of the races, amounts of wagers, amounts collected on winning tickets, and amounts lost on losing tickets, with supplemental records including unredeemed tickets and payment records from the racetrack. For lotteries, keep a record of ticket purchases, dates, winnings, and losses, with supplemental records including unredeemed tickets, payment slips, and winnings statements.
Professional gamblers, note: if gambling is your trade or business, different rules apply (Schedule C), and Publication 525 flags that for 2018–2025, professional gambling losses and expenses were also capped at winnings — confirm current treatment given the 2026 statutory change above.
This general overview doesn't replace personalized advice — a CPA can confirm how the 2026 90% limitation applies to your specific records and filing situation.
Sources relied upon
-
IRS publication IRS Publication 17 — Your Federal Income Tax (Individuals) — Introduction › Expenses You Can Deduct, p. 106
· see it highlighted in context
· official source (p. 106) ↗
“104 Chapter 12 Other Itemized Deductions Publication 17 (2025) Gambling Losses up to the Amount of Gambling Winnings You must report the full amount of your gambling winnings for the year on Schedule 1 (Form 1040), line 8b.”
-
IRS publication IRS Publication 525 — Taxable and Nontaxable Income — Miscellaneous Income › Other Income, p. 33
· see it highlighted in context
· official source (p. 33) ↗
“Winnings from lotteries and raffles are gambling winnings. In addition to cash winnings, you must include in your income the FMV of bonds, cars, houses, and other noncash prizes.”
-
IRS publication IRS Publication 525 — Taxable and Nontaxable Income — Miscellaneous Income › Other Income, p. 33
· see it highlighted in context
· official source (p. 33) ↗
“Include the amount from box 1 on Schedule 1 (Form 1040), line 8b. Include the amount shown in box 4 on Form 1040 or 1040 -SR, line 25c, as federal income tax withheld.”
-
IRS publication IRS Publication 17 — Your Federal Income Tax (Individuals) — Introduction › Expenses You Can Deduct, p. 106
· see it highlighted in context
· official source (p. 106) ↗
“You can’t deduct gambling losses that are more than your winnings. You can’t reduce your gambling winnings by your gambling losses and report the difference. You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction.”
-
IRS publication IRS Publication 17 — Your Federal Income Tax (Individuals) — Introduction › Expenses You Can Deduct, p. 106
· see it highlighted in context
· official source (p. 106) ↗
“You deduct your gambling losses for the year on Schedule A (Form 1040), line 16.”
-
IRS publication IRS Publication 505 — Tax Withholding and Estimated Tax — What’s New for 2026, p. 2
· see it highlighted in context
· official source (p. 2) ↗
“Limitation on deductible gambling losses. Beginning in 2026, your gambling loss deduction on Schedule A (Form 1040) will be limited to lesser of (1) 90% of your gambling losses or (2) your gambling winnings.”
-
Statute 26 U.S.C. § 165 — Losses
· see it highlighted in context
· official source ↗
· same text at Cornell LII ↗
“(d) Wagering losses › (1) In general For purposes of losses from wagering transactions, the amount allowed as a deduction for any taxable year— (A) shall be equal to 90 percent of the amount of such losses during such taxable year, and (B) shall be allowed only to the extent of the gains from such transactions during such taxable year.”
-
IRS publication IRS Publication 529 — Miscellaneous Deductions — List of Deductions › Gambling Losses Up to the Amount of Gambling Winnings, p. 10
· see it highlighted in context
· official source (p. 10) ↗
“Gambling losses include the actual cost of wagers plus expenses incurred in connection with the conduct of the gambling activity, such as travel to and from a casino.”
-
IRS publication IRS Publication 17 — Your Federal Income Tax (Individuals) — Introduction › Expenses You Can Deduct, p. 106
· see it highlighted in context
· official source (p. 106) ↗
“You must keep an accurate diary or similar record of your losses and winnings.”
-
IRS publication IRS Publication 17 — Your Federal Income Tax (Individuals) — Introduction › Expenses You Can Deduct, p. 106
· see it highlighted in context
· official source (p. 106) ↗
“• The date and type of your specific wager or wagering activity. • The name and address or location of the gambling establishment. • The names of other persons present with you at the gambling establishment. • The amount(s) you won or lost.”
-
IRS publication IRS Publication 529 — Miscellaneous Deductions — List of Deductions › Gambling Losses Up to the Amount of Gambling Winnings, p. 10
· see it highlighted in context
· official source (p. 10) ↗
“You can generally prove your winnings and losses through Form W-2G, Certain Gambling Winnings; Form 5754, Statement by Person(s) Receiving Gambling Winnings; wagering tickets; canceled checks; substitute checks; credit records; bank withdrawals; and statements of actual winnings or payment slips provided to you by the gambling establishment.”
-
IRS publication IRS Publication 529 — Miscellaneous Deductions — List of Deductions › Gambling Losses Up to the Amount of Gambling Winnings, p. 11
· see it highlighted in context
· official source (p. 11) ↗
“Racing (horse, harness, dog, etc.). A record of the races, amounts of wagers, amounts collected on winning tickets, and amounts lost on losing tickets. Supplemental records include unredeemed tickets and payment records from the racetrack.”
-
IRS publication IRS Publication 529 — Miscellaneous Deductions — List of Deductions › Gambling Losses Up to the Amount of Gambling Winnings, p. 11
· see it highlighted in context
· official source (p. 11) ↗
“Lotteries. A record of ticket purchases, dates, winnings, and losses. Supplemental records include unredeemed tickets, payment slips, and winnings statements.”
Quoted passages are extracted verbatim from the source documents by the citation system — they cannot be fabricated by the AI.
Ask a follow-up that builds on this answer, or start fresh — free, with cited sources.
Hopkins CPA Firm P.C. advises individuals and businesses on federal and Texas taxes.
Talk to the firm