Help me out with the new wagering IRS rules

[shanahan]

i\'ve been off the board a few weeks and other than seeing the comments, whta is the new IRS rule?

[belmont3]

The current law says you can deduct losses to the extent of your winnings.

The new law says you can only deduct losses up to 90% of your winnings.

Technically, under both laws, one is required to report all gambling winnings.
Technically, we should all be keeping detailed records of our winning and losses.
For example:

Player Shannie cashes $1 million in winning bets in 2026.
Player Shannie loses $10,000,000 on all other bets (LOL).

Player Shannie gets to deduct $900,000 in losses against his $1,000,000 in winnings.

Thus, despite losing $9,000,000 dollars net, Player Shannie gets to report $100,000 in gambling winnings and pay Uncle Sam income tax on the $100k

What a Big Beautiful Bill.  LOL

I think I have this right. It means we all need to retire January 1, 2026.

[shanahan]

Thank you for this.  I\'m surprised.  I guess to the track live is back in vogue.

[Silver Charm]

That would be reportable winnings. Not a Million $$ in just winnings.

There are similar but slightly different rules when it comes to reporting Capital Gains and Losses on Stocks. If it a Loss year you get capped at $3K with a roll over.

Also if a Businessman has 4 or 5 LLC\'s and he makes some money on all but that one has $1,000,000 in losses giving him a net loss of $800,000 he is capped out at approx $600,000 ( does he file single or jointly). However again there is a rollover.

The only thing missing on this gambling loss rule is the rollover.

[BitPlayer]

Not the same.  The capital gains rules allow you to use a net loss to offset other income, within limits.

As for gambling loses, even under the prior rules, you could only use them to offset gambling winnings.  You could not use net gambling losses to offset other income.

Under the new rules, you are always required to pay tax on 10% of your winning wagers, even if you have a net gambling loss for the year.

As a practical matter, I assume that most people don\'t report gambling winnings on wagers for which they do not receive a W-2G.

[Silver Charm]

Well said in that first sentence. For the sake of brevity, I wasn\'t specific enough.

And yes, in that last paragraph, if someone has a $5K Signer today but won $6K gross. Only the $5K gets reported and the payor withholds 28%. So once you have $5K in losses only $4.5k (90%) of losses would be allowed so thats $500 taxable income net. If you want to report the other $1,000 well that up to you.

Gambling winnings for things like large Parlays are reported.
For sports betting, including parlays, the provider is required to issue you a Form W-2G if your winnings are $600 or more and the payout is at least 300 times your wager.
However, even if your win does not meet this threshold and you do not receive a form, you are still legally obligated to report the income.

Other forms of gambling are now legal and more popular. Horse racing was not being singled out. Hopefully that\'s clear and if not its not taken personally. Straighten me out

[Socalman3]

BitPlayer Wrote:
-------------------------------------------------------
> Not the same.  The capital gains rules allow you
> to use a net loss to offset other income, within
> limits.
>
> As for gambling loses, even under the prior rules,
> you could only use them to offset gambling
> winnings.  You could not use net gambling losses
> to offset other income.
>
> Under the new rules, you are always required to
> pay tax on 10% of your winning wagers, even if you
> have a net gambling loss for the year.
>
> As a practical matter, I assume that most people
> don\'t report gambling winnings on wagers for which
> they do not receive a W-2G.

The post quoted above is 100% correct and the post it replies to was incorrect.

What\'s more --

1) Although it is true that nobody (virtually nobody) reports gambling winnings for which they do not receive a W-2g - that was true under a regime were the vast majority of taxpayers would not have owed any tax - it would have been a dead end for the IRS (or any finders fee types) to go after these people.  In the new regime, there are two new factors that change the whole equation - (a) a large amount of people who will owe a large amount of tax and (b) a new incentive for people to force collection (see infra).  

Let\'s put aside for a moment the question of whether this applies to professional gamblers, look at gross payouts at all parimutuel wagers and all sports/racebooks that are US taxpayers.  We are talking about billions of dollars here -- according to AI - $10 billion handle for parimutuel and $30 billion in legal sports betting.  So, looking at that handle, blending the take out between sports betting and horses - lets say that take out totals 10%.  That means that these companies report to the IRS that they tendered $36 billion of reportable gambling \"winnings\" to \"winning\" bettors.  Even though those gamblers as a whole by definition were losers (don\'t forget the take out), According to the IRS, ALL of those \"losers\" actually made $3.6 Billion of taxable \"winnings\".  

So, under the prior regime, there was nothing in it for the IRS to go after these people for not reporting because almost everybody was a loser plus there was almost no money at the end of the road for the few who might have won.  Under the new regime, EVERYBODY is now a winner AND there is at least $1 billion per year every year of collectable taxes out there to collect.  Very different situation. You can say $1 billion is so small that the IRS wont do anything about.  However, keep in mind, this is a sin tax and it accrues year in and year out.  What stops a church from going to the IRS and pointing out all the uncollected sin taxes going on in its parish?  The church can give the IRS the clear diagram on how to collect the uncollected sin taxes and the church gets a cut of anything they directed the IRS to go collect. The only thing you can do to avoid this is to either not bet, or only bet cash in person in an untraceable way (i.e. no more tracking play for rebates or benefits).  

This analysis ignores new taxes that would become due as a result of the falsely inflated AGI. Gamblers\' AGIs will escalate big time due to the fact that \"winnings\" go into the AGI and losses only may be deducted after the AGI is determined.

This is a sop to churches.  It gives churches a new source of revenue - they can tattle tale to the IRS for all the people in their parish not reporting their \"gambling winnings\".  I predict that your total handle at your wagering platforms will become the new W-2g.  Imagine if alcohol or tobacco sellers cooperated with their customers to avoid their sin taxes.  This is the easiest thing to forsee. Not reporting will no longer be a way out like it was under the prior regime.

I would love to be wrong here. I wish I was wrong here. I am planning to convert all my 2026 play into contest play as a way to keep gambling while reducing my sin tax bill.  One would think that betting platforms would be worried about bettors like me changing their patterns.  It could be disastrous for the sport.


2) There are many other huge ridiculous complications.  Arguably, this sin tax on gross cashes doesnt apply to professional gamblers - the argument runs that they use Schedule C and are allowed to net and they pay tax on their winnings.  However, the tax they pay on their winnings pales in comparison to the taxes they would pay on 10% of their handle. Also, does it make sense that a person can get out of paying a sin tax by being a professional sinner?  Whatsmore, under that theory, everybody is now a professional since everybody is deemed to win 10% of what they bet.  It is a total mess and makes no sense whatsoever. How on earth the IRS is going to enforce this is crazy plus with the finders fees and churches looking at a new source of revenue from finders fees on getting sin taxes paid.  Oy.

3) You might say I am being irrational about the church and state thing here, and I wish I was, but I would direct you to two things - current trends in caselaw on separation of church and state plus the fact that Russel Vought (the architect of all this) is devoutly religious and makes all this stuff both in business and in the supreme court a religious crusade.  You may ask yourself why bother with taxing false gambling winnings. IT was a silly thing.  But they did it and they did it for a reason. That reason is a drive to increase tax revenue from sinners.  Again, I wish I was wrong here.  Would love to be wrong here, but under the current supreme court, I fear I am correct.

4) The result of this is just incredible sadness.  This is so sad I cannot believe it.  What on earth merits penalizing people for how they choose their hobbies.  Believe me, if this were a tax on golf course fees, the people imposing this on us would back off so fast everybody woudl get a nosebleed.  One way to look at this is that we are being penalized because we choose to spend our Saturdays at the horse races instead of on the golf course.

[Socalman3]

Silver Charm Wrote:
-------------------------------------------------------
> Well said in that first sentence. For the sake of
> brevity, I wasn\'t specific enough.
>
> And yes, in that last paragraph, if someone has a
> $5K Signer today but won $6K gross. Only the $5K
> gets reported and the payor withholds 28%. So once
> you have $5K in losses only $4.5k (90%) of losses
> would be allowed so thats $500 taxable income net.
> If you want to report the other $1,000 well that
> up to you.
>
> Gambling winnings for things like large Parlays
> are reported.
> For sports betting, including parlays, the
> provider is required to issue you a Form W-2G if
> your winnings are $600 or more and the payout is
> at least 300 times your wager.
> However, even if your win does not meet this
> threshold and you do not receive a form, you are
> still legally obligated to report the income.
>
> Other forms of gambling are now legal and more
> popular. Horse racing was not being singled out.
> Hopefully that\'s clear and if not its not taken
> personally. Straighten me out

You assume that prior reporting rules will not change.  It will be incredibly easy for them to change the reporting rules so that the wagering platforms are required to give you a year end w-2G for your gross cashes.  Wish I was wrong, but it is the logical extension of everything we are seeing.  how on earth could anybody fight such a new reporting rule.  See my other post and consider the authority that Russell Vought has over the IRS.

[Silver Charm]

Well those are the current rules. Not these might be the rules or could be the rules. We are not there yet. Voight only has power now because Schumer shut the government down, Anything else requires an act of Congress,

Aren\'t Powerball Winnings taxable? So why would a $500,000 Pick 6 or 10 Play Sports Parlay be exempt?

If ALL horse racing winnings get reported then so should the corner convenience store scratch off for $100. But we are not there yet. Not even close. States are involved here too and they need this income.

[Socalman3]

Silver Charm Wrote:
-------------------------------------------------------
> Well those are the current rules. Not these might
> be the rules or could be the rules. We are not
> there yet. Voight only has power now because
> Schumer shut the government down, Anything else
> requires an act of Congress,
>
> Aren\'t Powerball Winnings taxable? So why would a
> $500,000 Pick 6 or 10 Play Sports Parlay be
> exempt?
>
> If ALL horse racing winnings get reported then so
> should the corner convenience store scratch off
> for $100. But we are not there yet. Not even
> close. States are involved here too and they need
> this income.


Powerball and scratch off tickets are impossible to track.

Wagering platform information is incredibly easy to track.  

The number they want tracked is an incredibly easy number -- all annual cashes by customer ID.  It is significantly easier to report than signers. This is a tax on gambling - you don\'t think churches will show up in the IRS Rulemaking and point out how easy it is to administer this new gambling tax?  The hard part is already done - implementing the gambling tax - administering it is far easier.

Vought and Trump have the power even before the shutdown, we are way down the path of the legislature ceding its authority to the executive.  It is not even a close call.

This is akin to the frog in the water seeing the flame turned on and saying oh, there is nothing to worry about, lots of stuff needs to happen before the water gets too hot.

This is plain and simple an outright tax on gambling. I guess there is no sympathy for gamblers.  This is Dr. Seuss - we are all trees and we have no Lorax speaking for us.

[Silver Charm]

95% of that is hypothetical. Or your opinion.

The same crew who ran on \"No Tax on Tips\" which took an act of Congress to pass suddenly have the random power to say all sport wagering winnings are taxable. Specifically horse racing sports betting. Thats not true. The Executive Branch does NOT have the power to do things like this themselves (except during a shut down) and there are no proposals to change this anywhere. Again these are your opinions.

[Socalman3]

Silver Charm Wrote:
-------------------------------------------------------
> 95% of that is hypothetical. Or your opinion.
>
> The same crew who ran on \"No Tax on Tips\" which
> took an act of Congress to pass suddenly have the
> random power to say all sport wagering winnings
> are taxable. Specifically horse racing sports
> betting. Thats not true. The Executive Branch does
> NOT have the power to do things like this
> themselves (except during a shut down) and there
> are no proposals to change this anywhere. Again
> these are your opinions.


I don\'t follow. The OBBBA mandates that the gambling loss deduction is capped at 90% of gross cashes. That is an act of congress mandating this tax on gambling; this is not the executive branch doing it.  I wish and pray and hope I am wrong.  Would love nothing better than to be wrong.  Please please please show me I am wrong.

The IRS doesn\'t require anything further from Congress to implement the regulations.  The Loper Bright case overruling Chevron allows the Supreme Court de novo review of the regulations, but who in their right mind would think that this Supreme Court is going to overturn any regulations by this IRS.  You can call this speculation on my part, but any Supreme Court practitioner will say this is one of the easiest calls of all time.

If you think my actual speculation (who wants and why and how they will get) is off base, ask yourself this, why did they enact this law in the first place and why did they refuse all attempts to change it?  Somebody wanted something. Congress doesn\'t just pass random stuff that not a single person wants.  Somebody wants it.  It is not speculation to say someone wanted this. Where I am speculating is the idea that whoever wanted it, is going to finish the job to make what they got enacted effective. Maybe you can say they are incompetent and will screw it up, but I would say the evidence backs up my argument over the contra.

I would love nothing better than for me to be wrong here.  This is not an argument I would like to win.  I hope and pray you are right and I am wrong.

[Silver Charm]

Its all good man and I enjoy the debate. And I want to avoid any Politics.

Here is a scenario I thought about. Lets say they make Sports Wagering Taxable. Twin Spires is required to send into the IRS a 1099-Gambler form.

I make a $100 Win bet at home on my account before I go to the Track. When I get to the Track I make another $100 Win Bet. The horse wins. Twin Spires reports my winner. But how does the On Track winnings get reported?

How do the On Track Losses get added in? Trying to tax On Track winnings would be as difficult as trying to tax Scratch Off winners at the Convenience Store of Lottery Tickets.

Here is the deal. There has been massive growth in on line wagering not just on horses but sports. Fan Duel, Bet MGM. Hard Rock. Its no longer what happens in Vegas stays in Vegas. Including Gambling winnings. Churchill Hill had a recent case where they had a Judge rule that wagers being made in Michigan but were routed thru an Oregon ADL they own were wagers made in Oregon. NYRA and many others were irate. Its the Wild West. But at the end of the day it comes down to DONT BITE THE HAND THAT FEEDS YOU. And that would be the Gamblers.....

[Socalman3]

Silver Charm Wrote:
-------------------------------------------------------
> Its all good man and I enjoy the debate. And I
> want to avoid any Politics.

agreed

>
> Here is a scenario I thought about. Lets say they
> make Sports Wagering Taxable. Twin Spires is
> required to send into the IRS a 1099-Gambler form.
>
>
> I make a $100 Win bet at home on my account before
> I go to the Track. When I get to the Track I make
> another $100 Win Bet. The horse wins. Twin Spires
> reports my winner. But how does the On Track
> winnings get reported?

This isn\'t a lot different than the rest of life.  There are various places where they will give you a 5% discount if you pay in cash. Something tells me that the credit card patrons\' business is reported to all relevant tax authorities and the cash paying customers\' business somehow doesn\'t make it into the relevant ledger.  Just a guess, but wouldn\'t be a surprise. You see this in many many places.  Cash economy is able to slip out of the electronic system.  Same is true with crypto (if anonymity is maintained).  I just think like in other places, there will be a sliver of business that escapes from the recordkeeping.  Just a fact.  Of course, one solution to our predicament is going to cash in person.  But, as a practical matter, this has other problems - (a) you lose all your frequent customers benefits (no rebates, no freebies), (b) you add a lot of time and cost to the experience that you dont have in living room downs, (c) just handling cash is a big problem - what happens if you have a bad day and exceed your ATM limits?  Things like this will lower your handle on track vs electronic, (d) your in person losses are no longer deductible.  If you play mostly in person and rarely on line, but you have a big score online, you can only deduct your online losses, not your on track cash losses - this will worsen your tax position rather than help it. Finally, from the standpoint of the IRS, they dont really care - as long as they have compliance for the most part, the sliver that escapes them is going to be more trouble than it is worth for them.  Again, this is like many other areas - they are going to look at the big picture - and here the big picture is that for the most part, this is going to be easy to enforce.

>
> How do the On Track Losses get added in? Trying to
> tax On Track winnings would be as difficult as
> trying to tax Scratch Off winners at the
> Convenience Store of Lottery Tickets.
>
AS mentioned above, you dont get the on track losses, but that is all part of the equation.  You cant have it both ways - you can say you want to escape detection for cashing but not escape detection for losing. The IRS looks at this with a wide lens.  They understand and know some people will do what it takes to avoid detection, but as long as those numbers are small, it wont be worth the effort/cost to go after.

BTW, if the effect of this move is to force everybody off track and go to scratch off lottery tickets - that is a great move from the government perspective.  The government makes way more money of scratch off lottery tickets than it does off live horseracing.  From their standpoint, it would be terrific if all horse bettors decided to play state lotteries instead of going to the track.
 
> Here is the deal. There has been massive growth in
> on line wagering not just on horses but sports.
> Fan Duel, Bet MGM. Hard Rock. Its no longer what
> happens in Vegas stays in Vegas. Including
> Gambling winnings. Churchill Hill had a recent
> case where they had a Judge rule that wagers being
> made in Michigan but were routed thru an Oregon
> ADL they own were wagers made in Oregon. NYRA and
> many others were irate. Its the Wild West. But at
> the end of the day it comes down to DONT BITE THE
> HAND THAT FEEDS YOU. And that would be the
> Gamblers.....

There is no question they are biting the hand that feeds them.  They are making the bet that Gamblers dont care and will just plow ahead.  This is like going all in every hand in poker.  It works fabulously until the one hand where you get knocked out.  This is going to work out great for the tax authorities, but if they dont kill the golden goose with this one, how much do you want to bet the next improvement is to cap deductible losses at 80%?  At some point, one of these moves will kill the golden goose and our sport will die.

[Boscar Obarra]

Good rundown of the impact of the idiotic  new rule.

https://sbcamericas.com/2025/10/06/one-big-beautiful-bill-abv-paper/