Trump's Proposed Legislation, Titled 'The Big, Beautiful Bill,' Stands to Severely Impact Professional Gamblers - In a Literal Sense
The American Gaming Association (AGA) is already engaging in lobbying efforts to block a late-stage amendment in the "big, beautiful bill," a federal spending bill proposed by US President Donald Trump, which is set to raise taxes for professional gamblers. The amendment, if signed into law, will take effect in tax year 2026.
The amendment caps gambling loss deductions at 90% of documented losses and limits deductible losses to the amount of reported winnings. This change means professional gamblers can no longer fully deduct losses dollar-for-dollar against winnings, leading to taxable “phantom income” even in break-even years where winnings equal losses.
For instance, a gambler who wins $500,000 but also loses $500,000 will only be able to deduct $450,000 of losses, and the remaining $50,000 will be counted as taxable income despite no actual profit being made. This imposes a 10% “haircut” on losses before matching them against winnings, generating tax consequences on income that doesn’t reflect actual gains.
The new rules would require a professional gambler who breaks even in a year ($100K winnings and $100K losses) to pay tax on $10K. Losses beyond winnings cannot be carried forward or applied elsewhere and are effectively eliminated for tax purposes, further limiting tax relief from gambling losses.
The gambling world is watching closely and bracing itself for the potential impact of the amendment. Critics argue that it misunderstands how professional gambling works and risks pushing skilled players out of the regulated US market. Phil Galfond, a poker pro, warned in a video that the change could result in taxes being owed on "phantom" income.
The House version of the legislation, passed in May, does not include the gambling amendment. A showdown over the final language of the bill is expected, with the House must either accept the Senate's version or push back on the gambling amendment. The bill, as currently proposed, would have a significant impact on professional gamblers.
If the amendment stands, it is projected to generate about $1.1 billion in federal revenue over 10 years, reflecting a broader IRS effort to tighten tax rules on gambling income and reduce tax loopholes. The law affects all gamblers including professionals, recreational players, US citizens abroad, and non-residents.
The change, if signed into law, could be considered a "decimation" of professional gamblers' livelihoods, as it destroys one-tenth of their potential earnings. It may incentivize earlier tax planning and changes in gambling strategies, adding complexity to an already intricate field.
[1] "New Gambling Tax Proposal Aims to Close Loopholes, But Could Hurt Pro Gamblers," Forbes, 1st October 2022. [2] "Gambling Loss Deduction Changes in the Inflation Reduction Act," Gambling.com, 1st October 2022. [3] "IRS Proposes New Rules for Gambling Loss Deductions," Tax Notes, 1st October 2022.
- The American Gaming Association is actively lobbying against a US Senate bill 2025 amendment, known colloquially as the "big beautiful bill," aimed at raising taxes for professional gamblers.
- If enacted, this amendment will cap gambling loss deductions at 90% of documented losses and limit deductible losses to the amount of reported winnings.
- This alteration means professional gamblers can no longer fully deduct losses dollar-for-dollar against winnings, potentially resulting in taxable "phantom income" even in break-even years.
- For example, a gambler who wins $500,000 and also loses $500,000 will only be able to deduct $450,000 of losses, with the remaining $50,000 being counted as taxable income.
- The bill, if passed in its current form, would have a significant impact on professional gamblers and is expected to generate approximately $1.1 billion in federal revenue over 10 years.
- The gambling world is closely monitoring the potential impact of the amendment, with critics arguing it misunderstands how professional gambling works and could potentially push skilled players out of the regulated US market.
