Efforts in the U.S. Congress to reinstate full federal deductions for gambling losses have hit a snag after the House Rules Committee decided not to move the FAIR BET Act forward, leaving a significant change to gambling tax laws slated for implementation in 2026.
The Fair Accounting for Income Realized From Betting Earnings Taxation Act (FAIR BET Act) was blocked as an amendment to the National Defense Authorization Act (NDAA) for 2026, which has prevented it from being voted on in the House. Consequently, taxpayers will face a limit on gambling loss deductions starting in the 2026 tax year unless legislative action is taken.
Representative Dina Titus, who represents a district encompassing Las Vegas and other prominent gaming areas in the U.S., introduced the bill. This initiative aimed to revive the traditional federal regulation that allows gamblers to deduct 100% of their documented gambling losses from their earnings on federal tax returns.
For many years, taxpayers who itemized deductions could offset their gambling losses against their winnings, thus ensuring that only their net profits were subject to taxation. This policy extended to various forms of legal gambling, including sports betting, poker, retail and online casino gaming, and pari-mutuel betting.
This system was modified by a provision within the One Big Beautiful Bill, which limited allowable deductions to just 90% of losses. With this modification, individuals could break even overall yet still owe taxes on their total earnings. Tax experts project that this change might yield approximately $1.1 billion in revenue over an eight-year term.
Titus has criticized the reduction in deductions as “a tax increase on gambling Americans,” claiming it would result in taxpayers being taxed on unearned income. In statements made to the Congressional Record, she highlighted that the FAIR BET Act would prevent gamblers from being taxed on income they didn’t actually earn and reduce the likelihood of individuals turning to offshore and unregulated gambling markets.
The House leadership mentioned that the Rules Committee, which is controlled by Republicans, opted against considering the amendment due to fears about restoring full deductions’ fiscal implications. Lawmakers indicated that broader discussions regarding tax policy might be a more suitable avenue for tackling this issue.
The decision has attracted responses from various sectors within the gambling industry. Industry associations assert that reinstating full deductions would foster equity for both casual and professional gamblers while bolstering the regulated gambling market. The National Thoroughbred Racing Association commended Titus’ initiative, emphasizing that these deductions are essential for the economic viability of horse players and the overall racing community, characterizing the reduction as detrimental.
Bipartisan interest has also surfaced. Some Republican lawmakers have voiced their concerns regarding the deduction changes, and during a field hearing of the House Ways and Means Committee, Chairman Jason Smith remarked that there is momentum from both parties to explore solutions prior to the cap’s enforcement.
The updated gambling winnings tax will take effect in 2026, potentially leaving gamblers who break even or incur losses facing taxable income. Tax professionals have recommended that frequent or professional gamblers seek expert advice, as the new regulations may complicate tax preparation and compliance.
In the wake of the Rules Committee’s decision, the future of the FAIR BET Act now hinges on the House Ways and Means Committee and potential inclusion in upcoming tax or budget discussions. Whether Congress can achieve a consensus on gambling tax reform before the 2026 tax year remains to be seen.