Crypto Gambling Taxes in the US (2025/2026)

The Basic Rule: Gambling Winnings Are Ordinary Income

The IRS has been consistent on this for decades: gambling winnings are ordinary income. It does not matter if you won at a poker table in Las Vegas, a sportsbook in New Jersey, or an offshore crypto casino with a Curacao license. Winning money gambling is income, and income gets taxed.

That income is taxed at your marginal rate, which means it stacks on top of whatever else you earned that year. If you are in the 24% bracket and you win $10,000 gambling, that $10,000 gets taxed at 24% (or more, if it pushes you into a higher bracket). The rates run from 10% up to 37% depending on your total taxable income.

Where does it go on your return? Schedule 1 of Form 1040, listed as "Other Income." Simple, no ambiguity. The obligation applies whether you won $80 or $80,000, and it applies whether the casino issued you paperwork or not. Self-reporting is the legal requirement, and not knowing about it is not an accepted excuse.

The Double Tax Problem with Crypto Gambling

This is the part most people do not realize until it is too late, and it can seriously change how you think about gambling with crypto versus cash.

When you use Bitcoin or any other cryptocurrency to fund a casino account, that deposit is a taxable disposal under IRS guidance (Notice 2014-21 and subsequent guidance). You are selling your crypto, as far as the IRS is concerned. If that crypto has gone up in value since you bought it, you owe capital gains tax on the appreciation, and that happens the moment you send it to the casino, before you even place a single bet.

Here is how that plays out in practice:

Example 1: The deposit tax

You bought 0.1 BTC when Bitcoin was trading at $20,000. Your cost basis is $2,000. Later, when Bitcoin is at $60,000, you decide to deposit that 0.1 BTC to a crypto casino. At the moment of deposit, that 0.1 BTC is worth $6,000.

That is a $4,000 capital gain ($6,000 value minus $2,000 cost basis). You owe tax on $4,000 before the house has even shuffled a deck.

Whether that gain is short-term or long-term matters a lot:

| Holding Period | Tax Treatment | |---|---| | Under 1 year | Ordinary income rates (10%-37%) | | Over 1 year | Preferential rates (0%, 15%, or 20%) |

If you bought that BTC six months ago and already pay 22% income tax, a $4,000 gain costs you $880. If you held it for two years, it might cost you $600 or less.

Example 2: The winnings tax

Now say you get on a hot streak and win 0.05 BTC when Bitcoin is at $60,000. That is $3,000 of gambling winnings. That $3,000 is ordinary income, taxed at your marginal rate. It does not matter if Bitcoin crashes to $30,000 next week. The income is measured at the fair market value on the day you received it.

The takeaway is that playing with appreciated crypto means you are potentially paying tax twice: once on the capital gain from the deposit, and again on whatever you win. Cash gamblers do not face that first layer.

W-2G Forms and Why Crypto Casinos Do Not Send Them

Traditional US casinos are required to issue Form W-2G when winnings hit certain thresholds. The general rules look like this:

| Game Type | W-2G Threshold | |---|---| | Slots, bingo | $1,200 or more | | Keno | $1,500 or more | | Poker tournaments | $5,000 or more | | Table games | Generally $5,000 or more |

These forms go to you and to the IRS. Hard to miss.

Offshore crypto casinos operate outside US jurisdiction. They have no legal obligation to issue W-2G forms, and virtually none of them do. So you will not receive any paperwork from a Malta-licensed or Curacao-licensed casino at the end of the year.

Here is the thing: that paperwork gap does not create a legal gap. The IRS requirement to report gambling winnings is on you, not the casino. The absence of a form does not give you a pass. "The casino didn't send me anything" is not a defense that will hold up in an audit. The income existed, you received it, you owe tax on it.

The IRS has been actively expanding its focus on crypto since 2019, when it added a direct question about crypto to Form 1040. The agency has used blockchain analytics, exchange data, and John Doe summonses against exchanges to identify unreported crypto activity. The infrastructure for finding this stuff has gotten better every year.

New for 2025-2026: Form 1099-DA

Starting with transactions that occur in 2025 (reported on returns filed in 2026), US digital asset brokers are required to report customer activity using the new Form 1099-DA. This is the crypto equivalent of the 1099-B that stock brokers already send.

Centralized exchanges operating in the US, like Coinbase and Kraken, will send this form to you and to the IRS, reporting your transactions including proceeds and cost basis information where available.

Offshore casinos are not going to comply with 1099-DA reporting. They are outside the jurisdiction. But here is the practical effect: your on-ramp and off-ramp transactions will be visible. When you buy Bitcoin on Coinbase, send it to a casino, then withdraw and sell back to USD, those exchange-side transactions show up. The IRS can see a large outflow to an unknown address and a large inflow back. That flow is now much harder to ignore.

The net result is that large-scale crypto gambling activity has significantly less anonymity than it did even two or three years ago.

The 2026 Loss Deduction Change (This One Actually Hurts)

Through the end of 2025, you can deduct 100% of your documented gambling losses against your gambling winnings. If you won $5,000 and lost $5,000 over the course of the year, your net gambling income is $0.

Starting in 2026, that changes. Under current law, only 90% of gambling losses will be deductible against winnings. That 10% is permanently non-deductible.

What does that mean in practice?

| Scenario | Pre-2026 | Post-2026 | |---|---|---| | Win $5,000, lose $5,000 | Net taxable: $0 | Net taxable: $500 | | Win $10,000, lose $8,000 | Net taxable: $2,000 | Net taxable: $2,800 | | Win $20,000, lose $20,000 | Net taxable: $0 | Net taxable: $2,000 |

Yes, this effectively creates a tax on breaking even. You can run a perfectly neutral gambling year and owe tax on it. The rule applies to all gamblers, not just crypto gamblers.

One critical caveat: the loss deduction only applies to itemizers. If you take the standard deduction, you get no benefit from gambling losses at all. More on that below.

Deducting Losses: The Full Picture

The rules around gambling loss deductions have a few layers worth understanding.

You must itemize. Gambling losses are deducted on Schedule A, the itemized deduction form. For 2025, the standard deduction is $15,000 for single filers and $30,000 for married filing jointly. If your total itemized deductions (mortgage interest, charitable contributions, state taxes capped at $10,000, and gambling losses) do not exceed your standard deduction, itemizing is not worth it and you get zero benefit from your gambling losses.

For most casual gamblers, this means losses are effectively undeductible. You report the winnings, you pay the tax, and the losses disappear into the ether.

Losses cannot exceed winnings. Even if you itemize, you cannot create a net gambling loss for tax purposes. If you won $3,000 and lost $8,000, you can deduct $3,000 of losses and that is it. The remaining $5,000 is gone. You cannot carry it forward to next year.

You need records. The IRS does not take your word for losses. You need documentation: session logs, withdrawal records, transaction histories. Vague claims do not hold up.

After 2026, only 90% is deductible even if you meet all the above conditions. Factor that into your math.

State Taxes: The Layer Most People Forget

Federal taxes are one thing. But most states that have an income tax also tax gambling winnings, and they add their own rates on top.

A few examples of state income tax rates on gambling winnings:

| State | Approximate Rate | |---|---| | California | Up to 13.3% | | New York | Up to 10.9% | | New Jersey | Up to 10.75% | | Minnesota | Up to 9.85% | | Oregon | Up to 9.9% |

If you are a California resident in the top federal bracket (37%) and you win big gambling, your combined federal and state rate on those winnings can push past 50%. You win $10,000 and keep less than $5,000 after taxes.

States with no income tax (Texas, Florida, Nevada, Wyoming, Washington, South Dakota, and Tennessee on wages) do not tax gambling winnings. If you live in one of those states, you only deal with federal.

State rules on loss deductions also vary. Some states follow the federal treatment and allow losses to offset winnings on itemized returns. Others (California, for example) do not allow gambling loss deductions at all. You need to check your specific state's rules.

What Records to Keep (And How to Keep Them)

Good records are your protection in an audit. They are also how you calculate your actual tax liability correctly instead of overpaying.

For each transaction, you want to track:

• Date and time of every deposit and withdrawal
• USD value of the crypto at the exact time of each transaction
• Cost basis of the crypto you used (what you paid for it and when you bought it)
• Session results with daily totals (wins and losses by session)
• Which casino and which games
• Transaction IDs or hashes for on-chain movements

Crypto tax software makes this significantly easier. Tools like Koinly, CoinTracker, TokenTax, and CoinLedger can pull your on-chain transaction history and calculate your gains and losses automatically. You still need to manually categorize gambling deposits and withdrawals in most cases, but the heavy lifting on price data and cost basis is handled for you.

How long to keep records? The IRS has a 3-year statute of limitations from the date you file for most audits. If they suspect substantial underreporting (more than 25% of income omitted), that extends to 6 years. Keep your records at least 6 years to be safe.

Cost Basis Methods

When you dispose of cryptocurrency, you have some choice in which coins you are considered to be selling. This matters because different coins have different cost bases, and that affects how much gain you recognize.

The two most common methods:

FIFO (First In, First Out): The default method. You are assumed to sell your oldest coins first. If Bitcoin prices have generally gone up over time and you bought older coins at lower prices, FIFO typically means higher taxable gains.

Specific Identification: You choose exactly which coins (or which lots) you are disposing of. If you have some coins with a high cost basis that are close to the current price, you can select those to minimize the gain on a given transaction.

Specific identification can meaningfully reduce your tax burden, but it requires documentation. You need to identify the specific lot at the time of disposal, and your records need to back that up. Your exchange or crypto tax software can help you track this properly.

You need to be consistent with your chosen method. Do not switch methods mid-year to game individual transactions.

Professional Gambler Status

If gambling is genuinely your primary livelihood and you approach it with the regularity and seriousness of a business, the IRS has a separate treatment for you: professional gambler status.

Under this classification, you file gambling income and expenses on Schedule C rather than Schedule 1. That opens up deductions that casual gamblers cannot claim: travel to casinos, home office expenses, software subscriptions, and other legitimate business costs.

The downside is significant: you owe self-employment tax (15.3%) on your net Schedule C income. For most people, this wipes out any advantage from the additional deductions.

Professional gambler status is also heavily scrutinized by the IRS. You need a consistent history of gambling as a primary income source, documented profit motive, and business-like record keeping. Claiming it without truly qualifying is a red flag that tends to invite audits. This is one area where you absolutely want a CPA's guidance before filing.

This Is Not Tax Advice

Tax law around crypto and gambling is genuinely complicated, and it moves. The 2026 loss deduction change is a real example of how rules that seem stable can shift. Form 1099-DA is brand new. State rules vary dramatically and change on their own schedule.

A CPA who works with crypto clients is worth the cost, especially if you are dealing with significant sums, multiple exchanges, offshore casino activity, or any question about professional gambler status. The nuances around cost basis methods alone can be worth the conversation.

The penalty structure for not reporting is also harsh. Failing to report income can lead to a 20% accuracy-related penalty on top of the tax owed, plus interest. Willful evasion carries criminal penalties. The tax itself is almost always smaller than the consequences of ignoring it.

Report your winnings, document your losses, track your cost basis, and talk to a professional if the numbers are meaningful to you.