Days after President Trump signed his new tax package into law, a bipartisan group – led by Nevada lawmakers – attempted to reverse a change in tax treatment of wagering losses.
Under IRC § 165(d), a taxpayer’s gambling losses for the year are deductible only to the extent of the taxpayer’s gambling gains – including complimentary goods and services – for that year. The 2017 Tax Cuts and Jobs Act provided that for the 2018 – 2025 tax years, gambling losses include the taxpayer’s deductible expenses incurred in carrying out gambling, whether they are a professional gambler or just gamble recreationally.
That expanded definition of gambling losses was set to expire in 2026.
The July 4th tax act (P.L. 119-21) made the TCJA’s change to the scope of losses permanent. However, the new tax act also limits the wagering losses deduction to 90% of losses in a tax year.
This drop from a 100% to a 90% deduction has been met with fierce opposition, particularly from Nevada lawmakers. Senator Catherine Cortez Masto (D-NV), who is leading up the Senate effort to bring back the 100% deduction, said the change means taxpayers will “literally be paying taxes on money they don’t have.”
Cortez Masto and other proponents of the 100% deduction also are concerned that the new act will “push wagering into illegal markets.”
And the new provision will “hurt Nevada’s gaming industry more broadly, which supports nearly a third of the jobs in our state,” said Senator Jacky Rosen (D-NV). That industry “generates billions of dollars for our local economy,” Rosen added.
But according to the Joint Committee on Taxation’s analysis, the change to a 90% deduction will raise more than $1.1 billion over ten years.
Legislation Introduced
Representative Dina Titus (D-NV) acted first, introducing the Fair Accounting for Income Realized from Betting Earnings Taxation (FAIR BET) Act, H.R. 4304, on July 7. The bill would restore the 100% deduction for gambling losses.
Titus’ bill had seven cosponsors as of July 11, including Representatives Troy Nelhs (R-TX), Jefferson Van Drew (R-NJ), and Mark Amodei (R-NV).
The bill’s goal is to “restore the full deduction for losses so gamblers don’t pay taxes on money they haven’t won,” said Titus.
Two days later, Cortez Masto introduced a similar measure, the Facilitating Useful Loss Limitations to Help Our Unique Service Economy (FULL HOUSE) Act, S. 2230. Senators Jacky Rosen (D-NV) and Ted Cruz (R-TX) are cosponsors of the Senate bill.
Failed Floor Effort
Cortez Masto spoke out on behalf of her bill on the Senate floor July 10, requesting unanimous consent that it be discharged from the Finance Committee and passed.
In her floor remarks last Thursday, Cortez Masto explained that the drop to a 90% deduction is not just an issue in Nevada. “Gaming exists across country – almost in every state. There’s so many people that are going to be impacted by this.”
However, Senator Todd Young (R-IN) objected, killing the effort for the day. Young insisted that Cortez Masto’s bill be amended to also provide for a religious exemption to the new tax law’s university endowment tax. That exemption – which would greatly benefit Indiana’s University of Notre Dame – was dropped from the Senate version of Trump’s tax package due to the chamber’s Byrd rule.
Cortez Masto accused Republicans of attempting to weigh down her bill with unrelated measures that they voted to support. She hopes her wagering losses proposal “doesn’t get caught in this constant churn” of Republicans “trying to undo” things they voted for in the new tax act. “They should have voted against the bill,” Cortez Masto added.
Finance Ranking member Ron Wyden (D-OR) also opposed Young’s amendment, saying ” it’s just not right to give a special home-state tax carve out.”
Cortez Masto concluded her floor effort Thursday by saying she is “disappointed,” but “not done.”
For more on deductibility of gambling losses, see Checkpoint’s Federal Tax Coordinator 2d ¶ M-6100 et seq. For more on the new tax act, see Checkpoint’s Executive Summary.
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