So here's a math problem that we are going to apply to tax year 2025, take a look at the numbers, then apply it to 2026 and take a look at the numbers. For this problem we are excluding all variables like cashback/comp, fudging numbers, other income, theory, etc. We are just taking a look at real world numbers of a video poker play:
1)Joe Gambler played exclusively at Brand X Casino.
2) He bet exactly $25 per hand video poker.
3) He played exactly 2000 hands per session.
4) He played exactly 100 sessions in the year.
5)After every session he dutifully made an entry in his logbook. If it was a winning session he listed it in Column A, Winning Sessions. If it was a losing session he listed it in Column B, Losing Sessions.
6) At the end of the year he added up the total of his winning sessions and the total of his losing sessions.
7)He booked exactly a $100,00 win for the year.
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From the above scenario is there anything we can deduce? Yep.
2000 hands per session times 100 sessions means he played exactly 200,000 hands in the year.
He played $25 per hand which means he ran exactly a $5,000,000 wager for the year.
Since he booked a 100K win for the year his winning sessions had to total to $2,550,000 and his losing sessions had to total to $2,450,000. These two numbers add up to the $5,000,000 wager.
If Joe played in 2025 or prior years he would owe tax on $100,000
But if Joe had this exact same result, under the new tax law, in 2026 what would the numbers look like?
Joe would have to deduct 10% off his losing sessions total. So $2,450,000 in losses become $2,205,000 in losses.
Subtacting $2,205,000 from the total of his winning $2,550,000 means Joe has to pay tax on $345,000. And this would also throw him into a higher tax bracket.
Joe book a 100K win. The tax burden would eat up all of that win. If he only made 50K he's in a world of hurt.
But the Bonaparte and Bright tax court decisions are throwing a wrench into the IRS's session method of gambling tax reporting which I will get to in a later post.
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