Tax Law Expiration Effect on Gamblers
The Tax Cuts and Jobs Act of 2017 (TCJA) made significant changes to the tax code that reduced individual and corporate tax rates and introduced numerous provisions aimed to benefit taxpayers. Unless action is taken to extend these provisions, most will expire on December 31, 2025.
While there were broad tax consequences of the TCJA that impacted many individuals and businesses, it introduced two provisions that directly impacted gamblers. Although not set to expire until the end of 2025, it’s important for both recreational and professional gamblers to familiarize themselves with these provisions and their tax impacts.
Net Operating Loss for Professional Gamblers
Many gamblers are familiar with the ruling in Mayo v. Comm’r [136 T.C. 81 (2011)], which set a favorable precedent for professional gamblers. It allowed for the deduction of nonwagering expenses (travel, meals, coaching, etc.) in excess of their net income from wagering activities. Simply put, if a professional gambler incurred nonwagering expenses in excess of their net gambling winnings, they would still be able to deduct 100% of these expenses. If this resulted in a loss, the loss could be used to offset other income or could be carried forward as a net operating loss.
However, since its passage in 2017, the TCJA clarified the Mayo ruling, stating professional gamblers cannot deduct nonwagering expenses in excess of their net income from wagering activities. This meant that no matter the result, a professional gambler could not claim a loss of any kind on their tax return. Any expenses were now limited to the tax year in question and could only be deducted up to the amount of net gambling winnings. This eliminated the ability to offset other income or generate a net operating loss.
This was another blow to professional gamblers, who already face unfavorable tax treatment. The expiration of this provision would provide some much-needed tax relief to professional gamblers.
Standard Deduction vs. Itemized Deductions
The TCJA eliminated deductions for personal exemptions, but nearly doubled the standard deduction for all filing statuses. In 2017, the standard deduction was $6,350 for single filers and $12,700 for married filers. In 2024, the standard deduction is $14,600 for single filers and $29,200 for married filers.
As a result of this change, many taxpayers now opt to utilize the standard deduction, as the increased amount is more beneficial than their itemized deductions. While offering a larger deduction, this increased threshold penalizes many recreational gamblers. Gambling losses can only be deducted (up to the amount of winnings) as an itemized deduction. If a recreational gambler has losses that do not exceed their standard deduction, they are effectively “losing” the ability to deduct these losses.
If the standard deduction reverts to pre-TCJA levels, more gamblers will choose to itemize their deductions. This will reduce the “penalty” associated with reporting gambling winnings as income and gambling losses as an itemized deduction.
If you already itemize your deductions (due to mortgage interest, local taxes, or charitable contributions), this change will not have a significant impact. But, for those gamblers with no additional itemized deductions, this could reduce your overall tax liability.
What to Expect
We may not know the standing of the TCJA provisions until the end of 2025. Congress may vote to extend all, some or none of the provisions set to expire. We will continue to provide updates to the gambling-specific provisions as they are available. Until then, be aware that these provisions will remain in place for the entirety of the 2025 tax year. Any changes will not be implemented until 2026, at the earliest.