Gambling loss cap to cost taxpayers directly; operators upset, too

No members of the Hoosier congressional delegation have made any public statement about the surprise change the One Big Beautiful Bill Act made to the 100% deduction for gambling losses . . . much less signed on as a cosponsor of the bipartisan “Fair Accounting for Income Realized from Betting Earnings Taxation (FAIR BET) Act” introduced by a co-chair of the Congressional Gaming Caucus that would restore the full deduction so that gamblers will not be forced to pay taxes when they have any winnings.

Gambling losses will now be capped at 90% of winnings. This means that “professional” gamblers will be taxed on unrealized gains – phantom gains – and owe federal (and potentially state) tax in years in which they lose money and post net losses.

The gaming caucus co-chair, U.S. Rep. Dina Titus (D-NV), explains, “This is just another attack on gaming and tourism and on districts like mine that rely on these industries. This also punishes people who are trying to do the right thing by reporting gambling on their taxes, pushing them towards offshore outlets and the predictions market, which unlike legitimate gambling sources, do not invest in bricks and mortar, pay state taxes, hire union labor, or contribute to problem gaming efforts.”

While everyone was watching the House for potential action (the Titus bill. H.R. 4304, is assigned to the House Committee on Ways and Means), there was a move Thursday in the Senate to restore the 100% deductibility that failed – in large part due to U.S. Sen. Todd Young (R).

Sen. Young sought to grant religious educational institutions, including the University of Notre Dame, a carve-out from the increased tax on educational foundations and endowments that was also a component of the One Big Beautiful Bill Act. In his push for the carve-out, he vowed to block unanimous consent on the gambling deduction change sought by U.S. Sen. Catherine Cortez Masto (D-NV) absent similar favorable treatment for Golden Dome dollars. Sen. Masto’s measure, in the form of S.2230, introduced Thursday, would provide that “Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.”

U.S. Sen. Ron Wyden (D-OR) objected to the Young measure so Sen. Young objected to the Masto gambling deduction measure in what amounted to – at least temporarily – Mutually Assured Destruction.

While Sen. Young told colleagues that he was supportive of Sen. Masto’s proposal, he felt compelled to object if the excise tax exemption for religious institutions – the Irish-related carve-out – wasn’t included in the package.

Faling to achieve the unanimous consent required to advance the measure, the Masto bill was instead assigned to the Senate Committee on Finance, where it must progress through the usual channels.

Two of the senior members of the finance committee tell HuffPost this week that they don’t know how the provision was added to the One Big Beautiful Bill Act, or by whom. “ ‘If you’re asking me how it got in there, no, I don’t know,’ Sen. Chuck Grassley (R-Iowa) said during an interview on Tuesday. ‘I don’t know anything about it. I’m not sure what it does,” Sen. John Cornyn (R-Texas) added.”

The Joint Committee on Taxation estimates that the gambling tax provision will generate more than $1.1 billion in extra revenue from gamblers across an eight-year period, but the Senate-inserted provision has riled up the whales and the gaming industry, which is concerned that the tax change will drive their better customers back to illegal offshore operators.

The American Gaming Association and the National Thoroughbred Racing Association are two organizations that quickly began organizing lobbying efforts to change the just-enacted law. NTRA President and CEO Tom Rooney says “There is no Thoroughbred racing without horseplayers. The changes to the tax deduction are detrimental to them and must be fixed.”

“We used to be considered self-employed small business owners. Now we’re being treated as criminal second-class citizens,” tweets one nationally prominent sports gambling expert who began his successful career long before legalization.

The 90% provision in the measure as it now stands could also boost state coffers by eliminating the federal deduction . . . as well as by a potential attendant change in how the Indiana Department of Revenue calculates win (on a per-session vs. cumulative basis).

Long-time readers of this newsletter will recall the long line of Revenue Rulings addressing this issue for Hoosier taxpayers.

As one ruling summed up the bottom line for Indiana based upon the then-applicable federal approach: “aggregating winnings and losses occurring in a particular period – then including the net winnings as income – is the proper measure for determining wagering gains for federal income tax purposes. In other words, gambling income equates to winnings minus losses whenever winnings exceed losses.”

BloodHorse reminds readers Tuesday that “In 2018, Kentucky updated its state tax laws to completely eliminate bettors’ ability to claim losses against winnings. Under this scenario, a bettor who won $100 on, say, the first race at Keeneland and then proceeded to lose every other race and finish down $500 would have owed taxes on the $100 in winnings. That change was quickly revised in 2019 to restore the ability to claim 100% of losses against winnings.”

This issue should be a major unplanned topic of discussion at the National Council of Legislators from Gaming States Summer Meeting July 9 – 12 in Louisville . . . ranking right up there with legislative concerns over prediction markets, the summer’s other major migraine for sportsbooks.

Expect individual operators to begin a lobbying effort directed at lawmakers whose districts include casinos pari-mutuel horse racing tracks.

U.S. Rep. Jim Baird (R) is the only Hoosier Member of Congress whose district, CD 04, does not contain any major gaming facility –  but we would bet that scores of students living in West Lafayette wager frequently from their respective fraternity, dorm room, and apartment couches. Here’s a reminder for you of which congressional districts are home to how many gaming facilities:

CD 01 – U.S. Rep. Frank Mrvan (D)

Horseshoe Casino Hammond

Hard Rock Casino Northern Indiana

Ameristar Casino East Chicago

CD 02 – U.S. Rep. Rudy Yakym (R)

Blue Chip Casino

Four Winds Casino South Bend

CD 03 – U.S. Rep. Marlin Stutzman (R)

Winner’s Circle New Haven (Harrah’s Hoosier Park)

CD 05 – U.S. Rep. Victoria Spartz (R)

Harrah’s Hoosier Park Racing & Casino

CD 06 – U.S. Rep. Jefferson Shreve (R)

Belterra Casino Resort

Rising Star Casino Resort

Hollywood Casino Lawrenceburg

Indiana Grand Racing & Casino

CD 07 – U.S. Rep. André Carson (D)

Winner’s Circle Indianapolis (Harrah’s Hoosier Park)

CD 08 – U.S. Rep. Mark Messmer (R)

Bally’s Evansville

Terre Haute Casino Resort

CD 09 – U.S. Rep. Erin Houchin (R)

Caesars Southern Indiana

French Lick Resort Casino

Winner’s Circle Clarksville (Indiana Grand)