These days, it feels impossible to tune into a game, enjoy a podcast, or scroll through social media without being bombarded by advertisements for sports betting. Whether it’s popular apps like FanDuel and DraftKings or the upcoming surge in “prediction markets” like Polymarket and Kalshi, the betting scene is thriving. But if you’re a newbie venturing into this world, be prepared for more than just potential losses. Starting January 1, 2026, significant changes to the federal tax code will affect how gamblers can deduct their losses.
Signed into law as part of the One Big Beautiful Bill this summer, this new rule—backed by the Republican party and Donald Trump—limits the deductions gamblers can claim on their losses to just 90% of their winnings. This means that while your 2025 tax returns won’t feel the pinch, come April 2027, the impact of these changes will become evident for your 2026 income.
How Will the New Tax Rules Affect You?
So, what does this mean in real terms? You can still write off your gambling losses, but only to offset up to 90% of your winnings. To illustrate, say you place several bets and win $1,000 while losing another $1,000. You can only deduct 90% of your losses—meaning you might end up owing the government $100 in taxes, even if in reality, you broke even on your bets.
Is There Hope for Change?
Efforts are underway to reverse this limitation. A local Las Vegas affiliate, Fox 5, reported on a congressional bill called the Fair Bet Act, which aims to restore the previous 100% deduction. However, passing this bill is no guarantee. The Trump administration may support it, given the backing of powerful gambling interests, but the situation gets murky when you factor in prediction markets.
What’s the Deal with Prediction Markets?
Donald Trump, Jr. has direct ties to these markets as an investor and advisor for Polymarket. But here’s the kicker: it’s still unclear whether bets placed on prediction markets count as gambling winnings and losses. Unlike traditional betting platforms, users on prediction markets are technically buying and selling financial “contracts” instead of placing bets, creating distinct legal boundaries that shield them from certain restrictions. As a result, more betting platforms are launching prediction markets to navigate these new waters.
What About Taxes on Prediction Markets?
This distinction introduces fresh questions concerning taxes, with minimal clarity among tax professionals about how to treat these bets. Interestingly, operators in prediction markets seem more certain about their position. A recent report from Coinbase indicates that these markets could become a more tax-friendly alternative to sports betting as the new deduction limits kick in. It’s a new game, but the “house” still seems to have the upper hand.
Will my gambling losses still be deductible?
Yes, but only up to 90% of your winnings starting in 2026. If you win and lose equally, you may end up owing taxes on the difference.
What is the Fair Bet Act?
The Fair Bet Act is a proposed congressional bill aiming to restore the 100% deduction for gambling losses that was previously available to bettors.
Are prediction markets different from traditional betting?
Yes, in prediction markets, users buy and sell financial contracts based on events rather than placing bets, which creates different legal and tax implications.
How do prediction market wins and losses get taxed?
Currently, there is limited clarity on how to treat winnings and losses from prediction markets when it comes to taxes, adding complexity for both bettors and tax professionals.
What’s next for gambling app regulations?
As regulations evolve, new questions will arise regarding online betting, especially in light of recent changes and emerging technologies. Keeping informed will be essential.
As the betting landscape transforms, bettors will have to navigate these new tax rules carefully. Staying updated on legislative changes could provide you with opportunities to maximize your betting experience while minimizing tax burdens. What do you think about the changes coming to gambling taxes? Let us know in the comments below!