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You can’t watch a sporting event, listen to a podcast, or open social media without receiving some sort of betting advertising, whether it’s the now-widespread sports betting apps like FanDuel and DraftKings or the rapidly growing “prediction markets” like Polymarket and Kalshi. But if you’re just getting started in the game, you’re going to suffer a lot more than just your losses. Beginning January 1, 2026, the federal tax code will be amended to limit the deductions players can take for their losses.
The change, which was part of the One Big Beautiful bill drafted this summer by Republicans and supported by Donald Trump, will impose a tax cap that limits deductions for gambling losses to 90% of winnings, up from 100% in previous years. This will go into effect for 2026 income. So while it won’t necessarily impact your 2025 tax returns, it will affect players when they come to file their 2026 tax returns in April 2027.
The new rule means you can still deduct your gambling losses, but only to offset up to 90% of your winnings. How does it work in practice? Let’s say you place a series of bets. You win $1,000 on these, but you also lose $1,000 on others. You can only deduct 90% of these losses, meaning you could owe the government $100 in taxes even though you technically broke even on your bets.
Efforts are being made to change this. Local Las Vegas affiliate Fox 5 reported that a congressional effort to pass a bill called Fair Betting Act would be restore the deduction to 100% it existed in the past. But there is no guarantee that this will succeed. One would assume that the Trump administration would support the bill, as it has the support of big players in the gaming industry. But things get a little more complicated with the introduction of predictive markets.
Trump has a more direct connection to these markets, as does his son Donald Trump, Jr. an investor and advisor to Polymarket. But no one really knows at this point whether bets placed on prediction markets actually count as gambling wins or losses. Prediction markets have carved out a niche for themselves that has legally separated them 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 bookmaker. It’s a distinction with no difference to their portfolio, as people keep losing money on their bets, but the difference means that prediction markets are not subject to some of the same restrictions as betting apps. This is why the betting platforms all launch prediction markets NOW.
This difference is already starting to raise new questions in terms of taxation, and there are little clarity among tax professionals on how to deal with prediction market betting. There is more clarity in the eyes of prediction market operators, if you can believe it. Coinbase recently published a report suggesting that prediction markets could become a “more tax-efficient substitute” for sports betting once the less favorable gambling deductions rule takes effect. Who “the house” is may be changing, but it seems the house always wins.
