The Law
Gambling is legal and regulated in New Jersey. A federal change that took effect in 2026 also made it more expensive to break even.
YSK: Starting in 2026, 10% of your gambling losses stop counting
Before 2026, if you won $10,000 and lost $10,000 in a year, you owed no federal tax on your gambling. Your losses cancelled out your winnings.
A federal law signed July 4, 2025 (the "One Big Beautiful Bill Act," section 70114) changed that. For tax years beginning after December 31, 2025, you can deduct only 90% of your gambling losses, and only up to the amount of your winnings. The other 10% is not deductible.
Old rule: deduct $10,000, taxable gambling income $0.
New rule: deduct $9,000, taxable gambling income $1,000, even though you came out even.
At a 24% federal bracket, that's about $240 in tax on money you never made.
Who gets hit: it's about how much you bet, not how much you lose
These examples assume you itemize on your federal return. In each case, taxable gambling income is your winnings minus your deduction, where the deduction is 90% of your losses, capped at your winnings.
View as table
| Year-end result | Won | Lost | Deduction | Taxable gambling income |
|---|---|---|---|---|
| Up $50,000 | $150,000 | $100,000 | $90,000 | $60,000 (was $50,000) |
| Break even | $100,000 | $100,000 | $90,000 | $10,000 (was $0) |
| Break even, high volume | $1,000,000 | $1,000,000 | $900,000 | $100,000 (was $0) |
| Down $100,000 | $500,000 | $600,000 | $500,000 (capped at winnings) | $0 (no change) |
The pattern: the more money someone moves through their account, the bigger the stranded 10%. Someone who finishes the year ahead or near even is hit. Someone who finishes well behind is not hit by this rule, though they still can't recover the losses.
YSK: Your losses may not cancel your winnings at all
Many people assume that if they lose as much as they win, they owe nothing. That's only true if you itemize. Here's how it works in plain terms.
Everyone gets a flat amount knocked off the income they're taxed on. You don't have to prove anything.
Mortgage interest, charity donations, state taxes, and gambling losses all count as receipts.
Whichever is bigger is the better deal. Tax software like TurboTax compares them and picks for you, but it can only count the losses you enter.
What this means for gambling:
- Lose a few thousand dollars with no other big deductions? Your receipts are smaller than the free coupon, so you take the coupon, and your losses do nothing. You're taxed on every dollar you won. This was true before 2026 too.
- Lose a very large amount? Your receipts likely beat the coupon, so you itemize, and your losses can offset your winnings (up to 90% of them in 2026, and never more than your winnings).
Whether itemizing makes sense depends on your whole return, so it's worth asking a tax professional.
What this does and doesn't mean
- It is not a flat 10% tax on losses. It means 10% of your losses can't be deducted, so you're taxed on that amount at your normal rate.
- Losses are only deductible if you itemize your deductions. If you take the standard deduction, you get no deduction for losses, before or after this change.
- Who it hurts: people whose losses are less than about 11% above their winnings. That includes anyone who bets a lot of money in and out and finishes near even or ahead.
- Who it doesn't change: if you itemize and lose much more than you win, you could already only deduct up to your winnings, and 90% of your losses is still more than that. Your tax doesn't change, but you never recover the extra losses.
- The deduction can't create a loss against your other income, and unused losses don't carry forward to next year.
- The tax comes due when you file your 2026 return, in spring 2027.
What about New Jersey?
On your NJ return, the Division of Taxation says you can use gambling losses to offset winnings from the same year, but only down to zero. If your losses are more than your winnings, you report zero gambling income and can't use the extra loss against other income.
The Division's guidance doesn't mention the federal 90% limit, and tax-preparer sources say NJ hasn't adopted it. Because this is a new federal rule, check the Division of Taxation's 2026 instructions or ask a tax professional before relying on it.
NJ also taxes lottery prizes only if a single prize is over $10,000.
What New Jersey charges the operators
New Jersey law P.L. 2025, c.66, approved June 30, 2025 and effective July 1, 2025, raised the tax on online gambling companies. Online casino gaming went from 15% to 19.75%, online sports wagering from 13% to 19.75% (plus a separate 1.25% for Atlantic City marketing), and daily fantasy sports from 10.5% to 19.75%. This tax is paid by the companies, not directly by bettors, but it shows how much money flows through this market.
Who regulates gambling in NJ
The Division of Gaming Enforcement and the Casino Control Commission license and oversee gambling under the Casino Control Act. The Division runs the state's self-exclusion program (see Get Help).
Age limits
You must be 21 or older for casino games, online casinos, online poker, and sports betting in NJ. The lottery, horse racing, and daily fantasy sports are 18 and up.
Sources
- IRS Internal Revenue Bulletin 2026-19, proposed regulations REG-113229-25 (explains the 90% limit under section 165(d))
- NJ Division of Taxation: Lottery and Gambling Winnings
- P.L. 2025, c.66 (A5803), NJ Legislature
- NJ Division of Gaming Enforcement: Self-Exclusion Program
Last checked: October 1, 2026. This page is general information, not legal or tax advice. Talk to a tax professional about your own situation.
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