By Douglas E. Price
💌 Today’s Thing: Sports, Bets, and YOU – A Brief Primer on Gambling and Taxes
Sports and gambling have received a LOT of attention in the news during the past week. With high profile arrests of pro basketball figures, and alleged involvement of organized crime figures by the U.S. Department of Justice1, this is one issue that is being closely watched by all three branches of the federal government.
It’s the end of October – and if you’re a sports fan, it’s prime time!
Football…college and pro are in high gear, pro basketball and hockey have just started, with Major League Baseball’s World Series is winding to its conclusion in the next few days. College basketball for men and women is about to burst all over the airwaves and internet in the next week or so. Even the smaller but growing men’s and women’s pro soccer leagues are starting their playoff action.
Every team sports league imaginable is in action. Some people are enjoying a season of bliss…while others sigh and search for the family room remote or a screen in another room.
🧾 Is this gambling matter really a sports case? …and a bit of historical perspective
While the gambling case charged two people associated with the National Basketball Association, the official press release from the U.S. Attorney’s Office, Eastern District of New York was focused on rigging of illegal poker games in New York City2. However, the historical association with an illegal point-shaving scandal in early 1950’s New York City college basketball and its aftermath should not be overlooked.
Here is a bit more background for you to consider:
Much of the current sports betting environment arose after the U.S. Supreme Court delivered a landmark decision in the case of Murphy v. NCAA3 (commonly associated with the state of New Jersey in the name of its current Governor Phil Murphy), giving states the ability to develop their own regulatory structures for gambling activities. Now keep in mind that when it issued the Murphy decision barely six months after the Tax Cuts and Jobs Act (TCJA) was enacted, the Supreme Court struck down the Professional and Amateur Sports Protection Act of 19924 (PASPA), which had effectively banned sports betting in nearly every state. That law, signed by President George H.W. Bush, was sponsored by former U.S. Senator, pro basketball Hall of Famer, and two-time NBA champion Bill Bradley.
The Murphy decision opened an entire industry. Sports books for gambling that used to be limited to Las Vegas and a few other places sprouted up in nearly every state and many arenas and casinos around the nation. New business brings economic growth and ultimately tax revenue on multiple fronts: more jobs, individual gambling winnings, that must be reported as Federal tax income.
Betting lines for point spreads and over/under point totals have been ubiquitous on the sport pages for decades. Today, with odds during a televised game for every situation imaginable and sports analytics on every conceivable metric available with a double-click on a website, it can seem like there is no escape.
At the start of the NFL season in early September, IRS Criminal Investigation (IRS-CI) issued a news article to promote taxpayer awareness of illegal gambling, and to “encourag[e] U.S. taxpayers to protect themselves when making wagers.”5 A bit part of protecting yourself – knowing the rules of the game. With gambling under greater scrutiny, seems like this is as good a time as any to talk about how and why you should stay on top of any…and actually all wagers you make.
🧾 The deets…clean and quick — HOW do taxes figure in sports and your gambling?
Whenever you have gambling winnings, you must report them on your individual Form 1040 at filing time in April. Gambling income is just that…income. The issue becomes how your losses offset your winnings.
Depending on the type of gambling winnings, the payer may be required to send Form W-2G to the person(s) receiving the winnings. The W-2G will identify the amount of federal tax withholding. In other cases, Form 5754 (Statement by Person(s) Receiving Gambling Winnings)6 is required when the person receiving gambling winnings subject to reporting or withholding is not the actual winner or is a member of a group of two or more people sharing the winnings.
There is a section of the tax code titled “Losses.” One of its subsections, IRC §165(d) focuses on “losses from wagering transactions.” The TCJA of November 2017 defined this term as “any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction.”7. This was a pretty wide-open definition for tax years in the period after December 31, 2017, and before January 1, 2026.
Under the TCJA, gambling gains can be fully offset by deductions for gambling losses during the same tax year. However, the One Big Beautiful Bill Act enacted this past summer is leaving its own mark on sports betting going forward.
📅 WHEN do any changes for gambling losses kick in?
Effective January 1, 2026, it reduces the amount a taxpayer can deduct for gambling losses to 90% of wagers lost during the tax year, and only to the extent of wagering gains in the same tax year8. So, taxpayers suffering losses from gambling wagers, sports or otherwise, will have to take a 10% haircut on the deduction.
Whether any of this would apply to losses incurred via allegedly illegal gambling transactions is a conversation to have with a licensing attorney and tax professional.
There’s the scoop, everyone! Thanks for taking time to check out this week’s edition of the Tax Clarity Newsletter.
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References (8)
1 U.S. Department of Justice, 31 Defendants, Including Members and Associates of Organized Crime Families and National Basketball Association Coach Chauncey Billups, Charged in Schemes to Rig Illegal Poker Games (October 23, 2025), accessed October 30, 2025.
2 Ibid.
3 MURPHY, GOVERNOR OF NEW JERSEY, et al. v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION et al., 584 US 453 (2018).
4 Pub. L. 102–559, §2(a), 106 Stat. 4227, Professional and Amateur Sports Protection Act of 1992.
5 IRS-CI urges US taxpayers to make safe, legal sports bets, https://www.irs.gov/compliance/criminal-investigation/irs-ci-urges-us-taxpayers-to-make-safe-legal-sports-bets, accessed October 30, 2025.
6 About Form 5754, Statement by Person(s) Receiving Gambling Winnings, https://www.irs.gov/forms-pubs/about-form-5754, accessed October 30, 2025.
7 Pub. L. 115-97, 131 Stat. 2089 (2017), Tax Cuts and Jobs Act, §11050(a), Limitation on Wagering Losses.
8 Pub. L. 119-21, 139 Stat. 166 (2025), One Big Beautiful Bill Act, §70114, Extension and modification of limitation on wagering losses.
DISCLAIMER: The information in this newsletter is derived from public information, provided for education purposes. It is not provided as a financial advisory service and should be relied upon as such. For advice on a specific tax matter, please consult a tax professional.