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If you're a US bettor who bets serious volume, the 2026 tax code changes are about to make your life significantly worse. Starting with the 2026 tax year, a provision in the federal tax law limits your gambling loss deduction to 90% of your gambling winnings. That sounds technical. It's not. It's a disaster for anyone betting professionally or semi-professionally in the United States.
This article is for US bettors who need to understand what "phantom income" means, how it's calculated, and what it does to your tax bill if you're not prepared.
Under the new rule, you can only deduct 90% of your losses against your winnings.
Same scenario: you win $100,000, you lose $100,000. You're still break-even in reality. But now you can only deduct $90,000 in losses. That leaves $10,000 in taxable income. At a 37% marginal federal tax rate, you owe the IRS $3,700 for the privilege of breaking even.
That $10,000 is phantom income. You didn't actually make $10,000. The government is taxing money you never had.
If you're a professional or semi-professional bettor grinding edges with high turnover, this makes your operation insolvent.
Let's say you're a sharp bettor with $10 million in handle over the year. You have a 1% ROI, which is excellent. You made $100,000 in actual profit. Here's the math:
Winnings: $5,050,000
Losses: $4,950,000
Actual Profit: $100,000
Under the old rule, you'd pay tax on $100k. At 37%, that's $37,000. Not great, but workable.
Under the new rule, you can only deduct 90% of your losses ($4,455,000). Your taxable income is now $595,000. At 37%, you owe $220,150 in federal tax alone. You made $100k. You owe $220k. You're insolvent.
This isn't hypothetical. If you're churning serious volume to grind small edges, the tax bill will exceed your profit. The higher your volume relative to your edge, the worse this gets.
The people who get hit least are casual recreational bettors with low volume. If you bet $5,000 total over the year, your phantom income might be a few hundred bucks. Annoying, but survivable.
The irony is that this tax targets the people who are actually good at betting. Recreational losers don't care because they're already losing money anyway. The tax code is punishing competence.
Track Everything
You need meticulous records. Every bet, every win, every loss, with timestamps and documentation. The IRS isn't going to trust your word. If you can't prove your losses, you can't deduct them. Use spreadsheets, betting tracker apps, whatever works. Just track everything.
Reduce Volume
This is brutal advice but it's true. If high volume creates phantom income that exceeds your profit, you need to bet less. Focus on your highest-edge plays. Pass on marginal spots. The math of the tax code is forcing you to be more selective whether you want to be or not.
Some of the forum members I've talked to are cutting their bet frequency by 50-70% to stay solvent. They're not betting worse - they're just passing more often because the tax burden makes lower-edge plays unprofitable.
Consider Offshore or Crypto Books
I'm not a lawyer and I'm not telling you to evade taxes. But the reality is that many sharp bettors are migrating to offshore crypto sportsbooks where there's no 1099 reporting and no automatic tax trail. You're still legally obligated to report your winnings, but the enforcement mechanism is weaker.
This is a gray area. If you go this route, understand the risks. The IRS can still audit you. If they find unreported gambling income, you're facing penalties and interest on top of the tax bill.
Talk to a Tax Professional
Seriously. If you're betting five figures or more in annual handle, you need to talk to a CPA or tax attorney who understands gambling income. They might find deductions or strategies I don't know about. They'll definitely help you avoid mistakes that make things worse.
When sharp bettors exit the US market because the tax code makes it unprofitable, that liquidity evaporates. What's left is recreational bettors betting against the house. The books will widen their margins to compensate. Lines will get worse for everyone. The market becomes less efficient and more expensive to participate in.
The US government is effectively subsidizing the offshore and crypto betting markets by making the regulated market unplayable for professionals. That's the opposite of what regulation is supposed to accomplish.
Lawmakers see "$10 million in handle" and think "that guy is rich." They don't understand that $10 million in handle might generate $100k in profit after a year of grinding. They see the gross number, not the net. So they write tax policy that treats churn as income.
The result is a tax code that punishes volume, which punishes the exact behavior (disciplined, high-frequency edge grinding) that separates professionals from gamblers.
If you're a US bettor and you're not thinking about this yet, start thinking about it. The 2026 tax year is the first year this applies, which means your 2027 tax filing (April 2027) is when the bill comes due. You've got time to adjust your strategy, but not much.
All gambling. Poker, casino, sports betting, daily fantasy - if it's reportable gambling income under IRS rules, the 90% deduction limit applies. The phantom income problem is worst for high-volume bettors, but it affects everyone.
What if I'm betting offshore already?
You're still legally required to report your winnings to the IRS. Offshore books don't send 1099 forms, so there's less enforcement, but if the IRS audits you and finds unreported income, you're in trouble. Talk to a tax professional about your specific situation.
Can I structure my betting to avoid this?
Not really. The law applies to your total annual gambling activity. You can't "reset" by opening new accounts or splitting activity across family members. The only real options are to reduce volume, leave the US market, or accept the tax hit.
This article is for US bettors who need to understand what "phantom income" means, how it's calculated, and what it does to your tax bill if you're not prepared.
What Changed in the 2026 Tax Code
Under the old rule, if you won $100,000 and lost $100,000 over the course of a year, you broke even. You reported $100k in winnings and deducted $100k in losses. Net taxable gambling income: $0. You owed nothing.Under the new rule, you can only deduct 90% of your losses against your winnings.
Same scenario: you win $100,000, you lose $100,000. You're still break-even in reality. But now you can only deduct $90,000 in losses. That leaves $10,000 in taxable income. At a 37% marginal federal tax rate, you owe the IRS $3,700 for the privilege of breaking even.
That $10,000 is phantom income. You didn't actually make $10,000. The government is taxing money you never had.
Why This Destroys High-Volume Bettors
If you're betting $500 a week on a few games, this probably won't wreck you. The phantom income on small volume is annoying but manageable.If you're a professional or semi-professional bettor grinding edges with high turnover, this makes your operation insolvent.
Let's say you're a sharp bettor with $10 million in handle over the year. You have a 1% ROI, which is excellent. You made $100,000 in actual profit. Here's the math:
Winnings: $5,050,000
Losses: $4,950,000
Actual Profit: $100,000
Under the old rule, you'd pay tax on $100k. At 37%, that's $37,000. Not great, but workable.
Under the new rule, you can only deduct 90% of your losses ($4,455,000). Your taxable income is now $595,000. At 37%, you owe $220,150 in federal tax alone. You made $100k. You owe $220k. You're insolvent.
This isn't hypothetical. If you're churning serious volume to grind small edges, the tax bill will exceed your profit. The higher your volume relative to your edge, the worse this gets.
Who Gets Hit Hardest
Anyone betting high volume with thin edges. That includes:- Professional bettors grinding 1-3% ROI across hundreds or thousands of bets
- Arbitrage bettors (already getting crushed by account limits, now also crushed by taxes)
- Live bettors making dozens of in-game wagers per day
- Anyone using "churn" strategies where you cycle bankroll multiple times per week
The people who get hit least are casual recreational bettors with low volume. If you bet $5,000 total over the year, your phantom income might be a few hundred bucks. Annoying, but survivable.
The irony is that this tax targets the people who are actually good at betting. Recreational losers don't care because they're already losing money anyway. The tax code is punishing competence.
What You Can Do About It
There's no magic fix here. The law is the law. But there are strategies to mitigate damage.Track Everything
You need meticulous records. Every bet, every win, every loss, with timestamps and documentation. The IRS isn't going to trust your word. If you can't prove your losses, you can't deduct them. Use spreadsheets, betting tracker apps, whatever works. Just track everything.
Reduce Volume
This is brutal advice but it's true. If high volume creates phantom income that exceeds your profit, you need to bet less. Focus on your highest-edge plays. Pass on marginal spots. The math of the tax code is forcing you to be more selective whether you want to be or not.
Some of the forum members I've talked to are cutting their bet frequency by 50-70% to stay solvent. They're not betting worse - they're just passing more often because the tax burden makes lower-edge plays unprofitable.
Consider Offshore or Crypto Books
I'm not a lawyer and I'm not telling you to evade taxes. But the reality is that many sharp bettors are migrating to offshore crypto sportsbooks where there's no 1099 reporting and no automatic tax trail. You're still legally obligated to report your winnings, but the enforcement mechanism is weaker.
This is a gray area. If you go this route, understand the risks. The IRS can still audit you. If they find unreported gambling income, you're facing penalties and interest on top of the tax bill.
Talk to a Tax Professional
Seriously. If you're betting five figures or more in annual handle, you need to talk to a CPA or tax attorney who understands gambling income. They might find deductions or strategies I don't know about. They'll definitely help you avoid mistakes that make things worse.
Why This Is Worse Than It Sounds
The second-order effect here is a liquidity crunch in the US regulated betting market. Sharp bettors provide liquidity. They're the ones taking the other side of recreational money, stabilizing lines, and making markets efficient.When sharp bettors exit the US market because the tax code makes it unprofitable, that liquidity evaporates. What's left is recreational bettors betting against the house. The books will widen their margins to compensate. Lines will get worse for everyone. The market becomes less efficient and more expensive to participate in.
The US government is effectively subsidizing the offshore and crypto betting markets by making the regulated market unplayable for professionals. That's the opposite of what regulation is supposed to accomplish.
The Bigger Picture
This tax change isn't about raising revenue from bettors. The amount collected from phantom income probably doesn't move the needle on the federal budget. It's about not understanding how betting works.Lawmakers see "$10 million in handle" and think "that guy is rich." They don't understand that $10 million in handle might generate $100k in profit after a year of grinding. They see the gross number, not the net. So they write tax policy that treats churn as income.
The result is a tax code that punishes volume, which punishes the exact behavior (disciplined, high-frequency edge grinding) that separates professionals from gamblers.
If you're a US bettor and you're not thinking about this yet, start thinking about it. The 2026 tax year is the first year this applies, which means your 2027 tax filing (April 2027) is when the bill comes due. You've got time to adjust your strategy, but not much.
FAQ
Does this apply to all gambling or just sports betting?All gambling. Poker, casino, sports betting, daily fantasy - if it's reportable gambling income under IRS rules, the 90% deduction limit applies. The phantom income problem is worst for high-volume bettors, but it affects everyone.
What if I'm betting offshore already?
You're still legally required to report your winnings to the IRS. Offshore books don't send 1099 forms, so there's less enforcement, but if the IRS audits you and finds unreported income, you're in trouble. Talk to a tax professional about your specific situation.
Can I structure my betting to avoid this?
Not really. The law applies to your total annual gambling activity. You can't "reset" by opening new accounts or splitting activity across family members. The only real options are to reduce volume, leave the US market, or accept the tax hit.
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