Question of the Day - 09 February 2026

Of course, in this QoD, like yesterday's, we're talking about the reduction of the gambling-loss deduction from 100% to 90% effective for tax years starting this January 1.

You're right that the most consistently cited reason for this specific change was revenue generation to help offset the cost of the bill's tax cuts and other provisions. The overall One Big Beautiful Bill was projected to significantly increase the federal deficit (by more than $3 trillion over a decade in some estimates), so lawmakers included various revenue-raising tweaks throughout the tax code.

Meanwhile, the gambling-loss limit was estimated by the Congressional Budget Office and Joint Committee on Taxation to raise approximately $1 billion over 8–10 years. You're also right to call it paltry; $1 billion is to $3 trillion what $10 is to $30,000. So all this vexation amounts to the government collecting $30K before the 90% loss limit to now collecting $30,010. Wow. What a big revenue generator. 

Sources from tax analyses (e.g., KPMG, Tax Foundation, academic pieces, and industry reports) describe it as a straightforward revenue-offset measure. It was added late in the legislative process and viewed as relatively low-profile and non-controversial at the time, since it primarily affects a niche group: professional/high-volume gamblers, high-net-worth whales, and the small percentage of itemizers who report significant gambling activity. The 10% haircut is framed as a "modest adjustment" similar to other deduction limits in tax law (e.g., on meals/entertainment, interest, etc.).

In addition, the tax-reporting threshold was raised from $1,200 to $2,000. So what the IRS taketh away from the loss deduction, it also giveth back from the higher reporting requirement, again for those who itemize deductions. 

Now, as to the real reason, the change appears to be purely fiscal, not punitive or retributive. That said, we can't help thinking, like you do, that the IRS and budget officials have always viewed gambling income as having compliance issues due to the traditionally cash-based activity and self-reporting of wins and losses.

So this measure could very well be a way to: 1) recoup some of the historic losses due to under-reporting and outright tax evasion; 2) discourage some high-worth people from continuing to gamble at all; 3) raise a tiny bit of money from a demographic (professional/high-stakes bettors) that lacks broad political sympathy or lobbying power compared to other groups; and 4) yes, punish those who, in the eyes of moralists, "win" unearned income, as opposed to the virtuous money that hard-working honest taxpayers report faithfully every year (primarily because it's all covered by W-2s that can't be fudged). 

Of course, this is all idle speculation. If future legislation actually reverses the 90% limit, it seems to us that that would confirm its inclusion was more about arithmetic than ideology. If not, well, who knows? Maybe it's just that legislators can't count.