The OBBBA and Gambling Taxes: A New Curveball for Connecticut Bettors
In 2025, the tax consequences of gambling got quite the shake-up with the passage of the One Big Beautiful Bill Act (OBBBA). Tucked into its 900 plus pages is a provision that’s got gamblers reaching for their calculators and maybe a stiff drink. The OBBBA limits gambling loss deductions to 90% of your losses, a change that’s rewriting the tax game for anyone engaged in a significant amount of gambling who needs to report their losses on Schedule A. Let’s review what this means for your wallet, especially in CT, where gambling taxes already are, well, incredibly unfair.
Prepare for the OBBBA to turn your wins into losses.
A Quick Refresher on Gambling Taxes in Connecticut
If you’ve ever placed a bet on DraftKings, spun the virtual slots at FanDuel, or tried your luck at Mohegan Sun, you know Connecticut loves its gambling. Since legalizing online casino gaming and sports betting in 2021, the state has seen a huge increase in wagers, and we have seen a lot of clients who have stumbled their way into overwhelming tax problems as a result.
Here’s the biggest problem: every win is taxable income, reported on your federal Form 1040, Schedule 1, line 8b, and for Connecticut residents, it’s also subject to state income tax. Losses? You can deduct them federally, but only up to your winnings and only if you itemize on Schedule A. Connecticut doesn’t let you deduct gambling losses at all for state taxes, which already feels like losing a bet you didn’t place.
I’ve previously written a blog article explaining the session method (you can find that article here: https://www.oconnorlyon.com/blog/2023/8/1/gambling-in-connecticut-and-taxes and I’ve also updated that article to account for recent changes.
Now, enter the OBBBA, which makes this already tricky landscape even more challenging. Let’s take a moment to work through an example that will detail the potential impact of OBBBA on a gambler’s tax return.
The OBBBA’s Big Change: The 90% Deduction Cap
Before OBBBA, if you won $100,000 and lost $100,000 in a year, you’d report $100,000 in gambling income and deduct $100,000 in losses (if you itemized), netting out to zero taxable profit. Simple, right? Not anymore. Starting in 2026, OBBBA caps your federal loss deduction at 90% of your losses. So, in that same scenario, you can only deduct $90,000 of your $100,000 in losses. That leaves you with $10,000 in taxable “phantom income”, money you didn’t actually pocket but on which taxes are still owed. For a Connecticut resident in the top state tax bracket (6.99%), that’s $6,990 in state taxes(because the taxes are applied to the gross wins), plus federal taxes (up to 37%, in this example another $3,700), on money you never took home. You’ll note that in this example you won $0 but have to pay more than $10,000 in taxes.
Let’s scale it up to see why the most active gamblers should be incredibly concerned. Imagine you’re a high-volume bettor with $3 million in winnings and $2.8 million in losses, netting a tidy $200,000 profit. Before the OBBBA, you’d report $3 million in income, deduct $2.8 million in losses, and pay taxes on your $200,000 profit. After the OBBBA, you can only deduct 90% of your losses, $2.52 million. That means federally you’re taxed on $480,000, not $200,000. Depending on your federal and state tax rates, you could owe more in taxes than you actually earned, turning your profitable year into a financial nightmare.
Why This Hurts Connecticut Bettors
Connecticut’s tax code already puts gamblers in a tough spot. Unlike some states, Connecticut doesn’t allow gambling loss deductions for state income tax, so your state tax bill is based on your gross winnings, no matter how much you lost. You can get a bit creative in calculating your gross winnings (see the session method discussed a bit more below). Combine that with OBBBA’s 90% federal deduction cap, and you’re getting hit from both sides. Let’s revisit our high-roller example: $3 million in winnings, $2.8 million in losses. Federally, you’re taxed on $480,000 because of the 90% cap. In Connecticut, you’re taxed on the full $3 million in winnings, leading to a state tax bill of roughly $209,700 (at 6.99%) even though you only walked away with $200,000. That’s not just unfair; it’s enough to make a lot of folks reconsider gambling in general.
For casual bettors, the impact might seem smaller but still stings. Say you bet $1,000 on a March Madness bracket and win $1,500, but lose $1,200 on other bets. Pre-OBBBA, you’d report $1,500 in winnings, deduct $1,200 in losses (if itemizing), and pay federal taxes on $300. Post-OBBBA, you can only deduct 90% of your $1,200 losses—$1,080—leaving you with $420 in taxable income. In Connecticut, you’re still taxed on the full $1,500, which means a state tax bill of about $105, even though your net profit was only $300.
The Session Method: A Partial Lifeline
There’s a glimmer of hope in the “session method,” which lets you net your winnings and losses per gambling session (typically a calendar day) before reporting them. IRS Notice 2015-21 allows this for slot machines, and we argue that it could apply to other gambling, though there’s no IRS guidance yet (there are however court decisions which support the application of the session method to other activities).
The session method will now be able to help people to reduce their federal tax liabilities in addition to their CT liabilities.
Let’s say you bet all year, winning $8 million but losing $8.05 million, a net loss of $50,000. Without the session method, you’d report $8 million in winnings and deduct only $7.2 million (90% of $8 million) federally, plus face Connecticut’s tax on the full $8 million, a whopping $559,200 state tax bill on a losing year. Assuming a 37% bracket on your federal return, this will be $296,000 in federal taxes. That’s a total tax bill of $855,200 on your $50,000 of losses.
Using the session method, you net each day’s wins and losses. If you had 50 winning days totaling $300,000 and 50 losing days totaling $350,000, you’d report $300,000 in winnings and deduct $270,000 on your federal return (90% of $300,000, again assuming a 37% federal rate, $11,100 of federal tax). In Connecticut, you’d owe state taxes on $300,000, about $20,970 in CT tax. It’s still absurd to pay taxes on a $50,000 loss, but it’s a far cry from $855,200 that you’d be paying without the session method. The catch? You need detailed records: dates, wager types, gambling locations, and amounts won or lost. Without them, you’re stuck with the default method and a bigger tax hit. Fortunately, FanDuel/DraftKings and most other online providers can provide you with spreadsheets that contain all of the required data for these calculations. Unfortunately, FanDuel can be quite difficult to work with to obtain this data, but, if you’re persistent you can always get the data, it may just take making the request 5, 10, or even more than 20 times. The FanDuel tax department told me they were rolling out a way to pull this data in spreadsheet form directly through their website, something they told me in January of 2024, and they are still yet to rollout.
What Can You Do?
The OBBBA’s gambling tax changes are set to kick in for 2026, but there’s still time to prepare:
Keep Detailed Records: Track every wager, win, and loss. Use apps or spreadsheets to log dates, amounts, and gambling platforms. This is critical for the session method.
Consult a Tax Professional: The session method and OBBBA’s nuances are complex. A tax professional can help you navigate deductions and minimize your tax burden.
Lobby for Federal Change: As of July 2025, there is a bill in the initial stages in Congress, called the FAIR BET Act that would restore the ability to deduct 100% of your losses against your winnings on your federal return. Consider contacting your representatives to support this bill and the restoration of the 100% loss deduction.
Lobby CT for Change: Connecticut House Bill 5551 was proposed back in January of 2025 and would have enabled CT residents to deduct their gambling losses against their gambling winnings. This bill died in committee, but that doesn’t mean that you shouldn’t strongly consider reaching out to your state representatives to support this change.
Consider Your Betting Strategy: High-volume betting may become less viable. Remember the tax impacts discussed here before engaging in large amounts of betting.
The Bottom Line
The OBBBA’s 90% loss deduction cap is an unforgiving change that will harshly punish people with a large amount of gambling activity. For Connecticut bettors, it’s even worse alongside the state’s no loss deduction policy. Whether you’re a casual March Madness bracket filler or a professional grinding out profits, this law could turn your wins into taxable losses. Stay informed, keep records, and maybe think twice before ramping up your gambling activity before considering the tax consequences. After all, in the world of gambling, the IRS, much like the house, always seems to have the edge.
Have questions about your gambling taxes? Contact The Law Offices of O’Connor & Lyon at (203) 290-1672 for a consultation. We’re here to help you navigate these gambling tax issues.