Americans for Tax Reform urges Congress to pass legislation restoring the full 100 percent deductibility of gambling losses.
Americans for Tax Reform urges Congress to pass the Facilitating Useful Loss Limitations to Help Our Unique Service Economy (FULL HOUSE) Act (H.R. 6985/S. 2230), introduced by Rep. Max Miller (R-Ohio) and Sen. Ted Cruz (R-Texas), which would fully restore the amount of gambling losses an itemizing taxpayer could deduct to 100 percent.
This legislation would restore basic fairness to the taxation of gambling income and remove a tax on phantom income.
The legislation was discussed in a markup held by the House Ways and Means Committee on Wednesday, where Chairman Jason Smith (R-Mo.) noted his support of the legislation and stated he is “committed” to solving this issue for taxpayers.
Return to Previous Law
A recent change to tax law will limit the ability of American gamblers to fully deduct their gambling loses against their winnings, resulting in a stiff tax penalty on gamblers if left unfixed.
Professional and casual gamblers alike have previously been able to deduct 100 percent of their gambling losses on federal income tax returns, as long as their deduction did not exceed their winnings for the year. Taxpayers who itemized deductions could fully offset their winnings with losses, so taxes were only paid on net profits. This is the proper tax treatment on gambling profits.
However, The landmark One Big Beautiful Bill Act changed this long-standing practice. Buried under extensions to President Trump’s first-term 2017 Tax Cuts and Jobs Act (TCJA) is a reduction of the gambling loss limitation to only 90 percent of losses. For many Americans, this adjustment affects recreational gambling, from casual poker nights to sports betting and casino visits. The legislation also has implications for professional gamblers.
This change in law was not included in the original House-passed version of the reconciliation bill and was likely included at the last minute in the Senate’s version to generate revenue and comply with the Byrd rule. Congress should now place proper tax treatment over a previous procedural requirement and restoration 100 percent deductibility of gambling losses.
Current Limitation Taxes Phantom Income
This limitation on deductible losses could result in gamblers paying taxes on income they did not actually receive. For example, a bettor who won $100,000 and lost $100,000 would, under the 90% cap, face a “phantom income” of $10,000; income that exists only on paper and does not appear in cash or bank accounts.
Widespread Impact
The provision’s impact will be felt beyond casinos and other physical gambling locations. As states continue to legalize online gambling through platforms such as DraftKings, FanDuel, BetMGM, and Bet365, available data from 2025 collected from online betting platforms have exceeded $1 billion in tax revenues. Similarly with the federal revenues, if gamblers limit their activity or move their bets to other markets, it eliminates the possibility for states to generate gambling-related revenue.
Restoring a full 100% deductibility would correct an unintended burden on American taxpayers placing bets on their favorite football teams, taking a trip to the casino, or enjoying a simple poker game with friends. This can be accomplished without jeopardizing other tax priorities or the broader fiscal goals of the Big Beautiful Bill.
Revenue Loss Could be Offset with Tort Reform to TPLF
The Joint Committee on Tax estimates that the current 90 percent limitation on wagering losses will raise $1.14 billion in revenue for the federal government from 2025 through 2034.
One positive reform that Congress could make to the tax code to restore the proper 100 percent deduction for gambling losses without adding to the federal deficit would be to pair it with conservative tort reform that removes preferential tax incentives for third-party litigation funding (TPLF).
As Americans for Tax Reform previously outlined in its List of Good Reforms that Raise Revenue for Trump’s Tax Cuts:
“Under our current tax code, the profits of TPLF funders derived from litigation activities are taxed as capital gains. This stands in contrast to the actual defendants who pay ordinary income tax rates on a taxable award from litigation. Thus, TPLF funders pay a lower tax rate on their portion of a court award than actual plaintiffs while foreign TPLF “investors” can leverage this tax treatment to avoid any U.S. tax obligation from using the U.S. court system to target U.S. companies with lawsuits.”
Congress should reform the tax code to remove the comparatively favorable tax treatment of TPLF funders, instead treating their income derived from litigation as ordinary income for tax purposes. By doing so Congress can crack down on the abusive practices of third-party litigation funding while generating revenue that can be used to restore the proper tax treatment of wagering losses for itemizing taxpayer to deduct to 100 percent.
