You can’t watch a sporting event, listen to a podcast, or open social media without being served some sort of advertising for betting, whether it’s the now widely proliferated sports betting apps like FanDuel and DraftKings or the rapidly growing “prediction markets” like Polymarket and Kalshi. But if you’re just starting to get into gambling, you’re going to get hit for more than just your losses. As of January 1, 2026, the federal tax code will change to limit the deductions gamblers can take on their losses.
The change, which was part of the Republican-authored and Donald Trump-supported One Big Beautiful Bill signed into law this summer, will impose a tax cap that limits gambling loss deductions to 90% of winnings, down from 100% in previous years. That will go into effect for 2026 income. So while it won’t necessarily impact your 2025 tax filings, it will hit gamblers when they go to file their taxes for 2026 come April of 2027.
The new rule means that you can still deduct your gambling losses, but only to offset up to 90% of your winnings. How does that work in practice? Let’s say you place a series of bets. You win $1,000 off those, but you also lose $1,000 on others. You can only take 90% of those losses as deductions, which means that you could owe the government $100 in taxes even though you technically broke even on the bets.
There are efforts to change this. Local Las Vegas affiliate Fox 5 reported that an effort in Congress to pass a bill called the Fair Bet Act would restore the 100% deduction that was in place in the past. But there’s no guarantee that passes. One would assume that the Trump administration would back the bill, as it has the support of big players in the gambling industry. But things get a little complicated with the introduction of prediction markets.
Trump has a more direct tie to those markets, as his son Donald Trump, Jr. is an investor in and advisor of Polymarket. But no one really knows at this point if bets placed on prediction markets actually count as gambling winnings and losses. Prediction markets have carved out a niche that have separated them legally from other gambling platforms because users are technically buying and selling financial “contracts” rather than betting on an outcome based on a line determined by a sports book. It is a distinction without a difference for their wallets, as people continue to lose money on their bets, but the difference does mean prediction markets aren’t subject to some of the same restrictions as betting apps—hence why the betting platforms are all launching prediction markets now.
That difference is already starting to present new questions when it comes to taxes, and there is little clarity among tax professionals as to how to treat prediction market bets. There’s more clarity in the eyes of the prediction market operators, if you can believe that. Coinbase recently put out a report suggesting that prediction markets could become a “more tax-advantageous substitute” to sports betting once the less-friendly gambling deductions rule goes into effect. Who “the house” is might be changing, but it seems like the house still always wins.
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