Your Money Stays in Vegas — Then the IRS Wants Some

by Tom Yamachika, President, Tax Foundation Hawaii

We continue our coverage of the Trump tax act by looking at the new rules on gambling losses.

Under prior law, gambling losses are fully deductible, but only against gambling winnings.  So if you went to Vegas and spent all day at a blackjack table and you lost the $500 you decided would be the limit on your out-of-pocket betting, there would be no tax consequence.  You would, of course, have an economic loss of your $500, which I suppose is the price of the entertainment.

Under the One Big Beautiful Bill Act, you can only deduct 90% of your gambling losses.  So if in that same scenario it turned out that you had winnings of $5,000 and losses of $5,500, which is certainly possible because people use their winnings to place further bets, then you would have winnings of $5,000 and a deduction of $4,500.  Thus you would be paying tax as if you made $500, which gives you a federal tax bill on top of the $500 that you lost at the tables.  This new tax starts in 2026.

The State of Hawaii has yet to decide which changes in the OBBBA it is going to adopt for state income tax purposes.  That decision will get made in the upcoming legislative session.  But what about the changes in the law that took effect for 2025?  Those changes will also get debated in early 2026, and it’s possible that some of the changes the State adopts will be retroactive to 2025.  We probably won’t know for sure until the middle of 2026, when the Governor signs new laws.  In the meantime, we will need to file taxes based on the state tax laws as they now exist.

Going back to the tax on gambling, it’s easy to see that anyone who spends more than a couple of days at the tables in a year might run up a decent-sized tax bill even if that person loses money overall. 

The effect is greatly magnified on professional gamblers.  The national Tax Foundation studied the possible tax effect on a famous poker player, Daniel Negreanu.  In the 2025 World Series of Poker, Negreanu cashed out $1,478,240 and his buy-ins totaled $1,297,143.  Under current law, he is taxed on his net winnings of $181,097.  If the OBBBA rules went into effect this year, he would be taxed on $310,811.  This not only increases his taxable income more than 70%, but quite possibly pushes him up into a higher tax bracket as well.

These consequences have not been lost on the gaming industry, which is up in arms about this.  As a result, many bills have been introduced in Congress, with bipartisan support.  In the House, lawmakers are co-sponsoring the bipartisan Fair Accounting for Income Realized from Betting Earnings Taxation (FAIR BET) Act, introduced by Rep. Dina Titus (D-NV) and co-sponsored by Rep. Guy Reschenthaler (R-PA).  Rep. Andy Barr (R-KY) separately introduced the Winnings and Gains Expense Restoration (WAGER) Act.  In the Senate, Senators Catherine Cortez-Masto (D-NV), Ted Cruz (R-TX), and Jacky Rosen (D-NV) introduced the Facilitating Useful Loss Limitations to Help Our Unique Service Economy (FULL HOUSE) Act.

I wonder how many days and nights it took for our Congressional staffers to come up with those proposed act names to go with those entertaining acronyms?

This provision seems to be part of a worrisome trend to impose tax on people even if they don’t have the economic gains to pay that tax.  We in Hawaii have already doing this for close to 100 years — our General Excise Tax does this — but is there a good reason why we should be expanding the tax base to tax more and more phantom income other than, “Because we can”?