Proposed Change:
Cap on Deductions: The proposed change would limit the amount of gambling losses that can be deducted to 90% of a gambler's winnings.
Impact: This means that even if a gambler wins and loses the exact same amount in a year, they would still have to pay taxes on 10% of their winnings, effectively creating "phantom income".
Affects Itemizers: This change would primarily affect gamblers who itemize their deductions on Schedule A of their tax return.
Current Rules (before the proposed changes):
Deductible Up to Winnings: Currently, gamblers who itemize can deduct their losses up to the amount of their winnings, meaning they generally don't owe additional taxes if their losses equal or exceed their winnings.
Requires Itemizing: To deduct losses, gamblers must itemize deductions on Schedule A and keep detailed records of their wins and losses.
Why the Proposed Change Matters:
Impact on Gamblers: Professional and high-volume gamblers, in particular, could face significantly higher tax bills under the proposed system.
Potential for "Phantom Income": Even if a gambler's net income from gambling is zero or a loss, they could still face a tax liability.
Industry Concern: This proposed change has raised concerns within the gaming industry, including worries about its impact on businesses and jobs.