New tax law takes away a longtime benefit for gamblers: the ability to write off 100% of losing bets

ALBANY — A little-noticed provision of the federal spending bill passed this month will remove a decades-old tax break for gamblers in a move that bipartisan opponents warn could threaten lucrative tax revenue from professional gamblers as well as from big events such as poker tournaments.

The new measure passed by Republicans in Washington ends the full deductibility of gambling losses in federal income tax returns. Under long-standing tax law, a gambler who won $100,000 in a year, but lost $100,000 would pay no federal income tax because they had no income to tax.

But under the federal tax change signed into law by President Donald Trump on July 4, that gambler will be able to deduct  only 90% of losses beginning next year. That will force gamblers to pay income taxes on money they no longer have.

The greater tax will hit professional gamblers and other high rollers hard. But more common, smaller-stakes gamblers from fantasy sports games to horse racing and casinos would also pay more federal tax if they deduct gambling losses on their federal returns.

While the measure is intended to raise more tax revenue, opponents' concern is that it could actually cost the government money if gambling participation drops or if the operators move their gambling offshore so their gamblers can avoid the tax.

The measure comes as New York State looks to license three downstate casinos, one of which could be at Aqueduct Racetrack in Queens, in part to help raise state tax revenue.

Deterrent to gambling?

Some opponents of gambling welcome the new federal measure as a deterrent to the sharp rise in problem gambling as the ranks of gamblers explode.

Long Island Gamblers Anonymous wouldn’t comment on the bill, but in a written statement to Newsday, the organization said, "Anything that may discourage people from gambling is good in our book."

"We are being flooded with 18-, 19-, 20-year-olds that never make it past their first week in college without burning through their term's living money," the organization stated.

The Republican measure is intended to raise $1.1 billion in the federal budget. That funding is needed to help cover the cost of tax breaks mostly directed at the wealthy, more funding for the Immigration and Customs Enforcement squads in Trump’s mass deportation plan and other added spending.

In all, the "reconciliation bill," as it’s known in Washington, will increase the federal debt by nearly $3.3 trillion over 10 years. 

The federal change won't affect gamblers' New York State taxes because the state didn’t adopt the federal tax change, said Ryan Cleveland, spokesman for the state Department of Taxation and Finance.

Under New York law, gamblers may deduct their total gambling losses from their state income taxes. Gambling losses can be deducted from income subject to state taxation, but only up to the amount of winnings. The state requires forms and documentation of the gambling wins and losses, according to state tax law.

The state doesn’t have any estimate of how many professional gamblers reside in New York or other data that could gauge the tax impact of the new federal measure, said Brad Maione of the state Gaming Commission.

Industry analysts, however, said most professional gamblers reside in Las Vegas or other gambling centers.

Spokesmen for Long Island’s Jake’s 58 Casino Hotel in Islandia didn’t respond to requests for comment.

'Budget gimmickry'

Opponents call the federal measure the "poker player death tax." 

The measure was little noticed until it was approved in Trump’s 900-page legislative bill this month, according to Sen. Catherine Cortez Masto (D-Nevada). She is leading a bipartisan effort to overturn the measure.

Masto said the Republican measure was "budget gimmickry" that wasn’t understood even by members of the House and Senate until the bill was rushed into print for Trump’s July 4 signing ceremony.

"There was an uproar across the country and rightfully so ... not just in Las Vegas, but across the country," Masto told the "Doug Polk Poker" podcast hosted by Polk, a professional gambler. "It’s a devastating impact."

"If we do not address this," Masto said, "the concern is a lot of these great events — like the World Series of Poker in Las Vegas — they could take it offshore."

Other impacts could be a disincentive to report gambling losses accurately for taxation to avoid or limit the tax increase, she said.

"We don’t want to push all of this offshore [and] we don’t want to push it in the shadows," she said, referring to illegal gambling. "We want to make sure it’s here in the United States and everybody is free to do it and continue to deduct 100% of their losses."

She said her repeal effort has bipartisan support.

In the House, Rep. Dina Titus (D-Nevada) introduced a related bill. She said the change is needed so "gamblers don’t pay taxes on money they haven’t won."

"This common-sense legislation will bring fairness back to gaming taxation, making sure that gamblers can fully deduct losses when they report their winnings," Titus said. "It gives everyone — from recreational gamblers to high-stakes gamblers — a fair shake."

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.