The 2026 Tax Cliff: The New Law That's Going to Hurt

Here's a sentence that should make every serious Ohio bettor uncomfortable: starting January 1, 2026, you can break even on your betting and still owe taxes on money you never actually made.

That's not a typo. The "One Big Beautiful Bill Act" (OBBBA), passed in mid-2025, includes a provision that caps gambling loss deductions at 90% of your winnings. For recreational bettors wagering a few hundred bucks a year, this barely registers. For anyone betting with real volume, it's a financial gut punch disguised in boring tax code.

Let's break down exactly what changed, who gets hit hardest, and what you can do about it.

What Actually Changed?

Under the old rules (pre-2026), if you itemized your deductions, you could deduct gambling losses up to 100% of your gambling winnings. The math was straightforward:

Fair enough. You broke even, you owe nothing on your gambling. Makes sense.

Now here's the new math:

You broke even in reality. But on paper, you owe taxes on $5,000 of income that only exists in the tax code. At a 22% federal bracket, that's $1,100 in taxes on money you never pocketed.

Who Gets Hit?

The impact varies dramatically based on your betting profile:

The "Phantom Income" Problem

This is the core issue: you're being taxed on income that doesn't exist in any practical sense. Financial planners are already calling it "phantom income" because you never saw it, never spent it, and never had it—but the IRS says you owe taxes on it anyway.

Here's a real-world scenario that's going to happen to Ohio bettors in 2026:

You ended the year exactly where you started—but you're writing a $440 check to the IRS. That's the new reality.

What This Means for Your Strategy

The 90% cap changes the math on whether betting at high volume makes sense. Here are the practical implications:

1. The "Winning" Threshold Just Got Higher

To actually come out ahead after taxes, you need to win more than you lose—not just break even. The old goal of "don't lose money" is now "win enough to cover the phantom income tax."

2. Tracking Matters More Than Ever

You absolutely must track every bet, every win, every loss. Without documentation, you can't prove your losses, and you'll be taxed on 100% of your winnings with zero deductions. That's catastrophically worse than the 90% cap.

3. Volume Reduction Might Make Sense

For some bettors, the smart play might be reducing volume. If you're betting for entertainment and typically break even, you're now paying a tax for that entertainment. At some point, the math might not justify the action.

4. Winning Bettors Pay More Too

Even if you're profitable, the 90% cap still bites. Say you win $30,000 and lose $20,000—you're actually up $10,000. Under old rules, you'd be taxed on $10,000. Under new rules, you can only deduct $27,000 (90% of $30,000) against your $30,000 in winnings, leaving you taxed on... wait, you can only deduct actual losses up to that cap. The math gets complicated, but the bottom line is: profitable bettors also see higher tax bills.

Can You Avoid This?

Let's be honest about the options:

File as a Professional Gambler: Theoretically, professional gamblers can deduct gambling losses as business expenses, which might work around the 90% cap. But the IRS has strict criteria for "professional" status—you need to prove gambling is your primary income source, you keep business-like records, and you devote substantial time to it. For 99% of bettors, this isn't realistic and could trigger an audit.

Don't Itemize: If you take the standard deduction instead of itemizing, you don't get to deduct gambling losses at all—so the 90% cap is irrelevant. For many casual bettors, this is already the case. But for high-volume bettors who itemize, you're stuck with the new rules.

Reduce Volume: The simplest solution is betting less. Smaller volume means smaller phantom income. It's not exciting advice, but it's mathematically sound.

The Ohio Angle

Ohio has its own state income tax, and gambling winnings are taxable at the state level too. While Ohio's withholding rates actually dropped slightly (to 2.75% in 2026), you're still looking at both federal AND state tax on your phantom income.

The combined hit—federal plus Ohio state—means break-even bettors in higher tax brackets could see effective tax rates of 25-30% on income that never existed.

The Bottom Line

The 2026 tax changes don't make sports betting illegal or even unprofitable. But they do add a real cost that didn't exist before. For high-volume bettors, it's a tax on action itself, not just on profits.

Here's the honest assessment:

• If you bet casually ($50-100/week), you probably won't notice
• If you bet regularly ($500+/week) and break even, you'll owe taxes you didn't before
• If you're a sharp betting serious volume, you need a tax strategy before 2026 hits

The play? Track everything. Understand your volume. And maybe reconsider whether that extra action is worth the new tax math. Taking a break isn't just good for your bankroll—in 2026, it might be good for your tax bill too.