US Gambling Tax Headache 2026: Crypto to the Rescue?

3 weeks ago 7

As someone from the UK, I’m blessed—I don’t have to pay a penny in tax on any gambling winnings, whether from a quick spin on slots, a sports bet, or even crypto plays. (Quick note: HMRC keeps individual winnings tax-free here unless gambling’s basically your full-time job; taxes hit operators instead.)

But all this got me thinking… what about our friends across the pond? The U.S. rolled out significant changes at the start of 2026, creating real headaches for players.

Let’s explore the laws, what’s new under the One Big Beautiful Bill Act (OBBBA), and why crypto casinos and prediction markets might be a clever workaround right now.

I’ll cover the U.S. rules, the fresh pain point, why prediction markets could skip most of it, and how crypto/DeFi betting offers a smoother path.

The New U.S. Gambling Tax Rules – What Changed in 2026?

I was reading up on the latest reports, and this one’s hitting U.S. bettors hard. Thanks to OBBBA, signed by President Trump in July 2025, gambling loss deductions are now capped at 90% of winnings starting January 1, 2026.

Note

Example: You win $10,000 but lose $10,000 over the year. Pre-2026, you’d deduct the full loss—no tax owed on a break-even. Now? You can only deduct $9,000 (90%), so $1,000 turns into “phantom income” that’s fully taxable. At a typical 24% rate, that’s $240 you owe the IRS… even though you walked away with nothing net. Ouch!

The change is projected to bring in about $1.1 billion in revenue over a decade, but it’s got the casino industry (especially Nevada) fired up—big donors like Miriam Adelson are pushing back, saying it could dent tourism and send players offshore.

Small upside: The slot jackpot reporting threshold jumped from $1,200 to $2,000, so smaller wins avoid instant IRS forms.

Trump did float the idea of going further—no taxes at all on gambling winnings (tying it to his no-tax promises on tips, overtime, and Social Security)—but as of January 14, 2026, it’s still just “I’ll think about it” from his December comments.

No concrete bills or timelines have emerged yet. However, bipartisan efforts—such as the stalled FAIR Bet Act and the newer FULL HOUSE Act (HR 6985, introduced in January 2026 with support from both sides of the aisle)—are gaining momentum.

Prediction market Kalshi currently shows a 64% chance of repeal before 2027 (i.e., anytime in 2026). Fingers crossed for the players!

Kalshi odds as of January 14, 2026: 64% chance the gambling loss cap is repealed before 2027 (up sharply after FULL HOUSE Act news)

Why Prediction Markets Might Dodge the Bullet

Here’s the fun part for crypto users: Prediction markets operate differently—they’re treated more like financial derivatives under CFTC rules, not traditional gambling.

Platforms like Polymarket or Kalshi let you trade “event contracts” (e.g., “Will Bitcoin reach $200K by Q3?”), and that often qualifies them for Section 1256 tax treatment.

That means: 60% long-term capital gains (0-20% rates), 40% short-term, and—key here—full loss offsets without the 90% cap.

Example: You risk $5,000 on a market and lose it all? Deduct the entire amount against other gains—no phantom income surprise.

Volumes are exploding: Polymarket alone hit $3.7 billion in trades in November 2025, riding election hype (Trump Jr. has connections to some platforms).

Coinbase’s 2026 outlook highlights them as a “tax-advantageous alternative” for gamblers. Watch out, though—some states (Tennessee, Michigan) are issuing cease-and-desists over unlicensed sports-style bets, but if federal protections hold, these could go mainstream.

Crypto Casinos & DeFi Betting – The Alternative Edge

Crypto casinos deliver a seamless, borderless experience, and they could shine even brighter against this U.S. restriction.

“Winnings on crypto casinos are often treated as capital gains (0–20% long-term rates) rather than gambling income, which could help sidestep the 90% cap entirely if structured properly. Plus, you get anonymity, instant crypto payouts, and no KYC hassles at many crypto casinos.

Betpanda is a classic: Deposit BTC, hit slots or sports bets, withdraw fast. If activity leans toward trading, full losses offset cleanly.

Duelbits adds its Predict feature, blending prediction market action right into crypto betting. DeFi on Ethereum or Solana? Smart-contract games like on-chain roulette or event bets are surging as players seek flexibility.

Pros of gambling with crypto casinos/prediction markets:

Tax Smarts — Full offsets beat the 90% trap hands down. Global Access — Play anywhere, no state lines. Bonus Perks — Crypto-exclusive deals, like BetHog’s Welcome Bonus: 100% up to $5,000 Innovation Edge — Bet on prices, events, or anything blockchain-powered.

Cons to keep in mind:

Regulatory Gray Areas — State vs. federal clashes could lead to crackdowns or audits. Volatility — Crypto swings can magnify wins (or losses). Play Responsible — Easy access means set limits and use tools. No Guarantees — If full tax elimination happens, the relative advantage shrinks.

No-KYC Casinos: 6 Best Anonymous Crypto Casinos

Final Thoughts: Is Crypto the Real Lifeline for U.S. Gamblers in 2026?

The 90% loss cap has turned even break-even betting into a taxable headache for U.S. players, and with repeal still uncertain (despite those promising 64% odds on Kalshi), traditional books and casinos feel a lot less appealing.

Meanwhile, crypto casinos and prediction markets are stepping up as a smart, flexible alternative—offering potential tax advantages through capital gains treatment, full loss offsets on platforms like Polymarket/Kalshi, plus the bonuses, speed, and anonymity we all love in the space.

Whether the cap sticks around or gets scrapped, one thing’s clear: savvy players are already exploring these options. If you’re watching from the sidelines (or just curious), now might be the perfect time to test the waters.

Ready to explore the smarter side? Head to Duelbits for Predict bets and grab a crypto bonus! Or check out Polymarket for event wagers.

Important

Important Disclaimer: This content is for educational purposes only and is not tax or legal advice. We do not endorse or support any form of tax evasion or illegal activity. Always seek professional advice from a qualified tax expert before making decisions related to taxes or gambling.

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