The FAIR Bet Act: New Tax Rules Let Gamblers Deduct 100% of Losses Against Winnings

This new legislation, dubbed the Fair Accounting for Income Realized from Betting Earnings Taxation Act (or the FAIR Bet Act), changes a small but important rule about how gambling winnings are taxed. Currently, if you win money gambling, you have to report it as income. If you also lose money gambling, you can deduct those losses, but the deduction was capped at 90% of your total winnings. This bill strikes that 90% cap and replaces it with 100%, meaning you can now deduct your gambling losses dollar-for-dollar against your winnings.

The Fine Print: What Changes for Your Tax Bill

For most people, the key takeaway is that the IRS is finally simplifying a slightly bizarre rule. Under the current system, if you won $10,000 and lost $10,000, you were still taxed on 10% of your winnings ($1,000) because your deduction was capped at $9,000 (90% of $10,000). The FAIR Bet Act changes Section 165(d) of the Internal Revenue Code to allow you to deduct the full amount of your losses—up to 100% of your winnings. This means in the $10,000 win/$10,000 loss scenario, your net taxable income from gambling would now be zero.

Who Benefits from the Full Deduction?

This change primarily benefits the regular, legal gambler, whether they’re hitting the casino floor a few times a year or placing online sports bets. Think of the office worker who participates in the March Madness bracket pool or the retiree who enjoys regular trips to the poker room. If your total losses over the year are close to or equal to your total winnings, this bill ensures you aren't paying tax on 'phantom income'—money you technically won but immediately lost back. By increasing the deduction limit, the government is essentially acknowledging that the true income from gambling is the net amount.

The Trade-Off: Less Revenue for the Treasury

While this is a clear win for taxpayers who gamble, it does mean the U.S. Treasury will likely see a slight reduction in tax revenue collected from gambling income. Previously, the 90% cap ensured the government collected tax on at least a small portion of gross winnings, regardless of losses. Now, if a taxpayer's losses equal their winnings, the government collects nothing on that activity. This is a straightforward policy decision: prioritize tax fairness for the individual over maximizing government revenue from this specific income source. The provision itself is clear and low on vagueness, making implementation straightforward for both taxpayers and the IRS.