Legislation to restore a key gambling loss tax deduction still awaits further action as the U.S. House of Representatives returns to normal business.
Key Takeaways
- Congress has yet to act on legislation that would restore the full gambling loss tax deduction, and despite bipartisan support, the bill faces long odds with limited time left in the legislative calendar.
- Without passage, high-spending gamblers will face a new 90% cap on deductible losses in 2025, creating taxable “phantom income” and potentially triggering billions in economic losses for casinos and sportsbooks.
- Industry stakeholders warn that reduced activity from high-value players could harm liquidity across the regulated gaming sector, as major operators prepare to launch differently taxed prediction markets.
With the House adjourned during a prolonged government shutdown, proposals to restore the tax deductions could not be debated or advanced. The House now returns to a more typical schedule, but with holiday breaks and multiple other pressing legislative matters pending before a year-end deadline, the chances of a repeal continue to decline.
Democratic Rep. Morgan McGarvey of Kentucky and Republican Nick LaLota of New York during the shutdown became the 19th and 20th co-sponsors of the bill. The bill's backers as well as leading gaming industry stakeholders remain publicly optimistic the repeal can pass in the next two months.
Still, a failure to pass the restoration could have far-reaching consequences across the regulated gaming industry.
Gaming tax bill background
High-spending gamblers could see a significant tax increase beginning next year if the tax deduction is not revised from the previous 100% level to the upcoming 90% cap.
In tax year 2025, a taxpayer who itemized gambling income could deduct all losses against their wins. A hypothetical gambler who won $100,000 and lost $100,000 would not have to pay taxes on their gambling income. Under the new provisions added to the One Big Beautiful Bill signed into law this year, that same gambler could only deduct $90,000 of the losses, meaning they would be taxed on $10,000 of “phantom” income they never realized.
This has sparked outcry from Nevada lawmakers and a bipartisan, bicameral group in Congress. Members of both chambers and both parties have said they were unaware of the gambling tax changes, included in a Senate version of the bill hours before it passed, and said they would back legislation to return the 100% deduction.
But that legislation has stalled in Congress as lawmakers have wrestled with the government shutdown on top of all other legislative business. Neither of two tax deduction restoration bills introduced in the House, one by Democratic Nevada Rep. Dina Titus and another by Republican Kentucky Rep. Andy Barr, have received a vote.
Republican Missouri Rep. Jason Smith, who chairs the committee that has oversight of both bills, said he supports the measure. But even if it advances out of the House's Ways and Means Committee, it would still have to pass both the full House and Senate - with less than eight weeks to do so.
This stuck House bill mirrors a stalled companion version in the Senate.
If the bill doesn’t pass before year’s end, industry analysts believe it could lead to billions in economic losses for regulated gaming entities, including casinos and sportsbooks.
Though only a small fraction of taxpayers itemize gambling losses, those who do are typically among the highest-spending gamblers. These “whales” give the gaming operators liquidity they can use to accept sports bets and offer other games to the millions of smaller gamblers.
The change also comes as FanDuel and DraftKings, the nation’s largest sportsbooks by market share, plan to launch prediction markets. These markets are taxed differently from casino and sportsbooks winnings, leading to speculation these platforms could attract would-be sportsbook bettors.
