Traders Cool on Gambling Loss Cap Rollback As Efforts Stall in Congress
Efforts in Washington to repeal a cap on the federal playing loss tax deduction have struggled to realize traction in current months. With earlier legislative efforts in Congress stalling and more moderen proposals simply getting off the bottom, prediction markets have mirrored a corresponding lack of momentum for a 2026 repeal.
The tax provision, enacted final 12 months as a part of the sweeping One Big Beautiful Bill Act (OBBB), limits the deduction for playing losses to 90%, a reversal from the longstanding rule that allowed gamblers to offset 100% of losses in opposition to winnings for federal tax functions. Industry teams and lawmakers from each events have referred to as the cap unfair, warning it may harm each gamblers and key gaming markets.
Since the primary week of January, odds in markets on each Kalshi and Polymarket that the deduction cap will likely be repealed in 2026 had fallen beneath 50%, and had been buying and selling across the 40% vary as of late afternoon on Jan. 21. At round 6 p.m., as members of Congress had been making their case {that a} rollback of the cap ought to be included in a broader appropriations invoice, the odds spiked briefly earlier than drifting downward once more as phrase unfold that no such modification can be included.
Despite the pullback in market sentiment, lawmakers have continued exploring bipartisan paths to revive the total deduction. However, a repeal this 12 months stays unsure. If Congress doesn’t act earlier than the top of the 12 months, gamblers could possibly be restricted to deducting solely 90% of their losses on 2026 tax returns.
FAIR BET Act seeks to repeal playing loss tax change
The sweeping OBBB, signed into regulation in mid‑2025, included a tax provision that essentially modified how playing losses are deducted on federal returns starting with the 2026 tax 12 months. Under the brand new regulation, deduction is restricted to 90% of losses, even when the losses equal or exceed winnings. That change can create so‑referred to as “phantom earnings,” the place a bettor owes tax on cash they by no means truly saved. For instance, somebody who wins $50,000 and loses $50,000, beneath prior guidelines, would owe no tax. With the brand new regulation, they’ll solely deduct $45,000 of losses (90%), leaving $5,000 in taxable earnings regardless of breaking even.
Soon after the deduction cap turned regulation, Democratic Rep. Dina Titus of Nevada moved to reverse it with the FAIR BET Act. Introduced in August 2025, the invoice would merely strike the 90% language and restore the total 100% loss deduction in the tax code. Titus, representing Nevada’s main gaming constituencies, argued that the restrict could push bettors towards offshore operators or “the predictions market” and undermine authorized playing exercise. She additionally mentioned the cap would possibly incentivize gamblers to keep away from reporting their earnings.
The FAIR BET Act has encountered vital headwinds. It stays into consideration in the House Ways and Means Committee, however there was no progress since it was first referred there final summer time, regardless of Titus urging expedited action in December. The invoice has continued to gather co‑sponsors, together with some from the Republican facet of the aisle, however, general, motion has been gradual.
Titus pushes so as to add deduction cap repeal to spending bundle
Beyond her push to cross the FAIR BET Act as a standalone invoice, Titus has tried to have the deduction cap repealed by including it as an modification to varied items of must-pass laws. An try to attach repeal language to the National Defense Authorization Act was denied by the House Rules Committee in September. Titus additionally reportedly tried to connect the cap repeal to a must-pass, $180 billion appropriations invoice, but it surely wasn’t included in the ultimate invoice that handed on Jan. 15.
On Jan. 21, Titus and different congressional supporters of the repeal spoke earlier than the House Rules Committee as they reviewed House Resolution 7148, a consolidated spending bundle that can fund numerous federal departments by September.
Titus, who submitted a deduction cap repeal modification to H.R. 7148, mentioned that the cap was snuck into the OBBB and that lots of her fellow lawmakers had been unaware it was included and didn’t assist it.
“Well, right here’s an opportunity to repair it,” Titus instructed the committee. “If you restore that lengthy standing 100% deduction, you’ll merely return to the regulation the way in which it was earlier than, the way in which it was understood, the way in which it was practiced for a few years, and also you don’t should rewrite anything. You can simply change that 90 again to 100. It’s a quite simple repair.”
FULL HOUSE Act lately launched in the House
Earlier this month, a bipartisan legislative effort to repeal the playing loss deduction cap gained recent momentum with the introduction of the FULL HOUSE Act in the U.S. House. Introduced by Rep. Max Miller (R‑Ohio) and co-sponsored by Rep. Steven Horsford (D‑Nev.), whose district contains a lot of the Las Vegas gaming trade, the bill would additionally restore the total 100% deduction by amending the Internal Revenue Code.
Introduced on Jan. 8, the FULL HOUSE Act was referred to the House Ways and Means Committee and has not but been scheduled for consideration, leaving its path to the ground unclear. Because Ways and Means is the important thing tax‑writing committee in the House, advancing the invoice out of it might be a promising signal. But even when it clears that step, the invoice would nonetheless want assist from a majority of the total House and Senate earlier than 12 months’s finish to take impact for the 2026 tax 12 months.
Miller and Horsford additionally testified on the Jan. 21 House Rules Committee listening to to submit an modification to H.R. 7148.
“Our invoice is easy and it’s clear,” Horsford instructed the committee. “We restore the regulation to what it was earlier than (the OBBB). Nothing extra, nothing much less. This sort of change is critical to make sure that current guidelines, rules, and court docket precedents stay related.”
The House Rules Committee reconvened early on Jan. 22 and in the end adjourned without voting so as to add both of the deduction cap repeal amendments to the spending bundle.
Prediction market odds for deduction cap repeal have cooled
Prediction market odds on the repeal of the playing loss deduction cap have cooled noticeably after reaching their highs late final 12 months. Kalshi and Polymarket each launched contracts in November monitoring whether or not the cap can be repealed in 2026, together with separate markets for motion earlier than April 1 and earlier than the top of the 12 months. Both platforms had additionally launched markets final summer time targeted on whether or not repeal would happen by the top of 2025.
On Polymarket, liquidity has been comparatively skinny. The “Cap on playing loss deductions repealed earlier than 2027?” market has drawn simply over $41,000 in buying and selling quantity, whereas the “repealed by March 31?” contract has seen roughly $65,000 traded. Prices in the “earlier than 2027” market climbed considerably steadily by November and early December, with “Yes” contracts topping out round 63% as Titus intensified her push for repeal. Since then, nonetheless, the market has steadily re-priced decrease. Odds slipped beneath 50% in early January, briefly touching the mid-30% vary earlier than a short-lived rebound tied to final night time’s developments in Washington.
Kalshi’s contracts have exhibited the same trajectory, however with considerably deeper liquidity and tighter pricing. Across its repeal-related markets, Kalshi has processed greater than $2.6 million in buying and selling quantity. The “repealed earlier than 2027” contract peaked close to 68% in late December, earlier than sliding sharply to roughly 40% on Jan. 7. Since that pullback, costs have struggled to regain the 50% degree, suggesting merchants have turn into extra skeptical that repeal will advance in Congress.
That skepticism was briefly interrupted on Jan. 21, when social media clips circulated exhibiting testimony in favor of repeal-related amendments throughout the House Rules Committee listening to. In response, merchants aggressively bid up “Yes” contracts on Kalshi, with costs momentarily surging into the higher 90% vary.
Gamblers pay attention to prediction market worth surge
The spike caught the eye of the broader playing neighborhood, which has been carefully following the cap repeal efforts. Professional sports activities bettor and common playing content material creator Captain Jack Andrews shared a screenshot of Kalshi’s “earlier than 2027” market exhibiting “Yes” odds at 97%, fueling short-term hypothesis that repeal language would possibly efficiently be connected to the invoice.
Andrews later posted about what most likely triggered the transient worth surge.
“What possible occurred is identical market maker was seeding many of the No facet and pulled out when it regarded like sturdy momentum in the committee listening to,” Andrews wrote on X. “That spiked the costs. Other market makers crammed in, transferring the worth again down.”
Price swings because of breaking information present buying and selling alternatives
By midday on Jan. 22, pricing in the markets on each platforms had fallen barely beneath the place it was earlier than information of the House Rules Committee testimony started circulating. Polymarket’s odds took longer to settle again down, creating transient home windows the place merchants utilizing each platforms may purchase or promote at noticeably totally different costs.
Movements like this illustrate how prediction markets can be utilized not simply to specific a long-term view, however to commerce round short-term swings. Sudden bursts of consideration from viral clips and breaking information can push odds larger or decrease than the place they in the end land. Traders who’re watching carefully can step in to take earnings throughout spikes or purchase again positions after costs cool off.
The markets may also serve a extra sensible function for gamblers and trade members with actual monetary publicity to the coverage consequence. Professional bettors, high-volume gamers, and playing companies all face uncertainty over how losses will likely be handled for tax functions. By taking positions tied to repeal efforts, they’ll doubtlessly offset among the monetary danger if Congress in the end doesn’t transfer in favor of their pursuits.
As the legislative debate continues, odds are prone to hold swinging, much less as definitive predictions and extra as a real-time reflection of headlines, sentiment, and the way merchants react to them.
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