Revised Tax Legislation Sparks Concerns Among Gamblers and Industry Experts
Recent amendments tucked into a sprawling 940-page tax reform bill have raised alarms within the gambling community, particularly among professional sports bettors. These changes threaten to impose new tax obligations on gamblers even when they experience net losses, fundamentally altering longstanding tax practices.
Unexpected Provisions and Industry Shockwaves
Just days before the bill’s passage through Congress, the inclusion of a controversial clause caught many off guard. Industry insiders and seasoned bettors alike expressed shock, with some describing the situation as “chaotic.” Gary Kondler, a CPA based in Las Vegas specializing in the taxation of professional sports bettors and poker players nationwide, recounted a week filled with frantic client calls and confusion.
From Deducting All Losses to Partial Deductions: The New Reality
Historically, gamblers could deduct their total losses from their taxable income, meaning that only their net winnings were taxed. However, the new legislation, which is expected to be signed into law by President Donald Trump, restricts this deduction to just 90 percent of losses. Consequently, bettors may find themselves liable for taxes on their gross winnings, regardless of their overall profit or loss for the year.
For example, a bettor with $950,000 in winnings and $1 million in losses would, under the previous rules, only pay taxes on the net profit of $950,000. Under the new law, they could only deduct $900,000 of their losses, resulting in a taxable “phantom income” of $50,000-money they never actually received but are now required to report and pay taxes on.
Implications for Professional Sports Bettors
This shift poses a significant threat to professional sports gamblers, often called “sharps,” who rely on meticulous, narrow-margin betting strategies to earn a living. Previously, their ability to deduct all losses helped sustain their operations. Now, with only partial deductions allowed, many could face substantial tax bills despite operating at a loss.
Consider a scenario in 2027 where a bettor breaks even after a year of wagering. They might receive a tax form indicating owed taxes, despite having neither gained nor lost money overall. Such surprises could undermine the financial stability of many professional gamblers.
Economic and Industry Impact
According to estimates from the Congressional Joint Committee on Taxation, this deduction cap could generate approximately $1.1 billion in additional revenue over the next eight years. Nonetheless, critics warn that this measure could backfire by discouraging high-stakes bettors, who contribute significantly to the legal sports betting market-accounting for an estimated 25 to 50 percent of all wagers placed legally.
Reducing the number of sharps could lead to decreased betting activity, which in turn might diminish federal revenue from sports betting excise taxes-currently set at 25 cents per $100 wagered. The long-term consequences could include a decline in overall betting volume and a potential shift toward unregulated offshore markets.
Political Reactions and Calls for Reform
While the Senate Finance Committee, led by Chairman Senator Mike Crapo (R-Idaho), did not respond to inquiries, critics from both parties have voiced concerns. Senator Ron Wyden (D-Oregon), the committee’s ranking Democrat, suggested that the provision might have been included to meet specific revenue targets mandated by Senate reconciliation rules. Meanwhile, some Democratic representatives, like Nevada’s Congresswoman Dina Titus, have pledged to introduce legislative amendments to reverse or modify the deduction restrictions.
Potential for Offshoring and Market Shifts
Industry insiders warn that these tax changes could incentivize gamblers to seek alternative platforms outside U.S. regulation. For instance, Kalshi, a regulated financial exchange valued at $2 billion, offers Americans the chance to trade on sporting event outcomes-often blurring the lines between gambling and financial trading. Critics argue that such platforms exploit regulatory loopholes, allowing users to sidestep traditional gambling restrictions and potentially pay lower taxes on their earnings.
Industry Perspectives and Future Outlook
Executives from the sports betting sector have expressed frustration. Alex Kane, CEO of Sporttrade, a platform seeking regulatory status similar to Kalshi, called the new tax rules “absurd,” emphasizing that they hinder professional bettors’ ability to earn a livelihood. Meanwhile, well-known professional gambler Rufus Peabody humorously noted on social media that he consulted AI tools about alternative careers, given the new restrictions.
Impact on Casinos and the Broader Gambling Ecosystem
Some industry sources suggest that the deductions restriction might serve as a covert method to reduce the number of professional gamblers, potentially benefiting casinos that prefer recreational players. An anonymous sportsbook employee hinted that the policy could be part of a broader strategy to limit high-stakes, professional betting activity, which could ultimately reshape the landscape of legal gambling in the U.S.
Regulatory and Advocacy Efforts
The American Gaming Association (AGA) had previously advocated for maintaining full loss deductions and increasing the reporting threshold for slot machine winnings from $600 to $2,000, aiming to reduce administrative burdens on casinos. While the AGA publicly supported the final bill, it has yet to publicly oppose the deduction restrictions, prompting criticism from gambling advocates like Richard Schuetz, CEO of American Bettors’ Voice, who accused industry groups of neglecting their responsibilities to protect players’ interests.
Conclusion: Navigating a Changing Landscape
As the new tax legislation takes effect, professional and recreational gamblers alike face a transformed environment. The potential for increased tax burdens, coupled with the lure of offshore markets and financial trading platforms, signals a period of significant change for the industry. Stakeholders are calling for legislative adjustments to safeguard the rights of gamblers and ensure a fair, sustainable gambling ecosystem in the United States.