Congress advances bill to fully deduct gambling losses, reversing cap from earlier tax overhaul

The House Ways and Means Committee just overwhelmingly approved a provision that would let gamblers deduct 100% of their losses against winnings on their federal taxes. The vote was 38-5.

The measure reverses a cap that would have limited gambling loss deductions to 90% of winnings, a restriction baked into the One Big Beautiful Bill Act signed on July 4, 2025. That 10% gap created a tax bill on money they never actually pocketed.

The phantom income problem

Under the capped system, a gambler who won $100,000 and lost $100,000 in the same year would still owe federal income tax on $10,000. That $10,000 is what the industry calls “phantom income.”

The provision is embedded in H.R. 10357, formally titled the Digital Asset Tax Certainty Act. It would apply retroactively to tax years beginning after December 31, 2025, meaning the 90% cap effectively never takes hold.

The Joint Committee on Taxation estimates the full deductibility restoration will reduce federal tax revenues by roughly $2 billion over the 2027-to-2036 window.

Who’s pushing this and why

The bill’s primary sponsors are Rep. Dina Titus, a Democrat from Nevada, and Sen. Ted Cruz, a Republican from Texas. MGM Resorts, Caesars Entertainment, and DraftKings have all thrown their weight behind the legislation.

Nevada collects no personal income tax and relies heavily on gaming revenue to fund public services. A federal tax provision that makes gambling even marginally less attractive poses an outsized threat to Las Vegas and Reno.

How the sausage got made

The original 90% cap wasn’t some carefully debated policy choice. It was a revenue offset, a way to make the broader tax bill’s math work on paper. Within months of the One Big Beautiful Bill Act’s passage, the gaming industry mobilized aggressively to undo the cap before it could bite. The 38-5 committee vote suggests that mobilization worked.

By pegging the restoration to tax years beginning after December 31, 2025, Congress is essentially pretending the 90% cap never existed. Gamblers filing their 2026 returns won’t need to worry about the cap, assuming the bill clears the full House and Senate.

The $2 billion revenue estimate over a decade works out to about $200 million per year. Congress will need to find that money somewhere else, or simply accept a slightly larger deficit.

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