Senate Version of Big, Beautiful Bill Is Bigly Ugly Towards Gambling

The extension to the Tax Cuts and Jobs Act (TCJA) is now in the Senate as the “Big, Beautiful Bill.”  The Senate version will likely receive a final vote today (and pass); however, it is quite different in certain areas from the House bill (that earlier passed that chamber).  And it is really ugly (or to use one of President Trump’s phrases, bigly ugly) towards gambling.

The Senate version would permanently change Internal Revenue Code Section 165(d):

• Limit gambling losses to 90% of gambling winnings Limit gambling losses to 90% of the gambling losses incurred, and
• For professional gamblers, the total of losses and business expenses could not exceed are reduced to 90% of gambling winnings losses and business expenses incurred.

Consider Joe, an amateur gambler who comes to Las Vegas once a year.  He breaks exactly even, with $100,000 of gambling winnings (all on W-2Gs) and $100,000 of gambling losses.  If he doesn’t keep a session log he’s going to owe tax on $10,000 of income.

Or consider Larry, a professional gambler, with $500,000 of gambling winnings on the poker circuit, but $440,000 of losses and $50,000 of ordinary and necessary business expenses; he’ll have to pay tax on $50,000 $59,000 of income rather than his $10,000 of net income.

UPDATE: This isn’t as bad as I initially reported (but it is bad–especially for professional gamblers).  Most amateur gamblers lose.  Let’s consider Lisa, an amateur gambler with $100,000 of gambling winnings. If she has $111,111 of gambling losses she will be able to fully offset her gambling winnings with losses.

However, many professional gamblers report winnings, and their total of business expenses and losses will be reduced to 90% of the actual number.  In the example above for Larry, I initially had his taxable gambling income (under the Senate bill) as $50,000.  It is $59,000 as his $490,000 of losses and business expenses will be limited to $441,000.

I do need to point out that these provisions are not in the House version (the House version simply extends the current TCJA limitations on business expenses causing a loss for professional gamblers).  This is one of many areas where the two versions are not the same and will need to be ironed out (likely in a conference committee).

There are two inescapable conclusions if the Senate version becomes law.  First, keeping a gambling log will be essential: If Joe had $100,000 of wins and $100,000 losses in the same session he would have $0 of gambling winnings.  Second, this would be another big negative towards gambling and would definitely hurt tourism in areas like Nevada.