A 25-year-old bettor thought he lost $10K in 2023, but the IRS hit him with $1,650 in extra taxes and penalties. With OBBBA's 90% cap coming in 2026, the situation will only get worse for recreational gamblers.
I've been betting online recreationally since 2020 — mostly NFL parlays during football season, some NBA props, occasional poker. 2023 was my biggest year. About $38K wagered total across DraftKings, FanDuel, and a couple of poker apps. I won about $28K back. So in my head, I was down $10K for the year. Entertainment money. Annoying, but not catastrophic.
In February 2024 I got my first 1099-MISC. DraftKings reported about $14K in winnings to the IRS for me. I plugged the number into TurboTax, paid the federal tax on it (somewhere around $2,800 at my bracket), and figured I was done.
I was 25. I had no idea my losses didn't reduce that number unless I itemized. I rent an apartment in LA. I don't itemize. Nobody had ever told me any of this.
About a year later: CP2000 notice from the IRS. Turns out FanDuel had ALSO sent me a 1099 — about $3,400 from a tournament cashout I'd basically forgotten about — and a poker app had W-2G'd me on a $1,500 bad-beat jackpot. Total under-reported, per the IRS: about $4,900. They wanted another $1,300 plus interest and an accuracy penalty.
I got an enrolled agent to help me respond. He's the one who finally explained §165(d) to me. He told me I COULD have deducted my gambling losses against my winnings — but only if I itemized federally. The standard deduction was higher than anything I could itemize, by a lot. So no offset. Period.
After that I tried to actually start tracking. Downloaded a spreadsheet template, logged every bet, every session, every date, every win/loss. I lasted about ten weeks. At any real volume online, sports betting is dozens of bets a week — sometimes dozens of bets in a single Sunday. The IRS apparently wants per-session logs with date, location, game, opponents where applicable, and win/loss for EACH session. For an online sportsbook "session" isn't even clearly defined. My EA told me most clients in my situation just eat the audit and move on.
So that's what I did. Paid the $1,300 plus penalty. About $1,650 extra total. On a year I genuinely thought I'd lost $10K.
Now I'm hearing about the OBBBA and the 90% cap that hits in 2026. Even if I started itemizing — got married, bought a house, finally hit the threshold — I'd still owe federal tax on 10% of my losses. The math is no longer "you get penalized for taking the standard deduction." It's now "you get penalized for being a bettor, period."
I joined FairBetAct because every bettor I've talked to has some version of this story. Most haven't been through it yet. I have. The old rules were punitive even for people trying to do it right. The new rules make it impossible.
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