Gambling Loss Deduction Changes Under H.R. 1.

The recently enacted omnibus federal tax bill included a provision that lowers the cap for gambling-related loss deductions and permanently adopts a TCJA-era limitation on business expenses, unbeknownst to many of those who advocated for and voted in favor of the legislation.

Prior to the implementation of the TCJA, gamblers were permitted to deduct "losses from wagering transactions" up to the amount of gains from such transactions, creating a loss cap of 100% of the gambler's winnings. However, "professional" gamblers could also deduct certain expenses incurred as ordinary and necessary business expenses in excess of net gambling winnings (gambling winnings that exceed gambling losses from wagering), and these business expense deductions were not subject to the section 165(d) cap. See Mayo v. Commissioner, 136 T.C. 81 (2011).