Professional Gambler Tax Status: When Schedule C Applies

A person whose gambling is a trade or business reports winnings and losses on Schedule C, while everyone else reports winnings as other income and can deduct losses only by itemizing on Schedule A. The line between the two comes from the Supreme Court's 1987 decision in Commissioner v. Groetzinger: gambling pursued "full time, in good faith, and with regularity, to the production of income for a livelihood" is a business. For taxable years beginning after December 31, 2025, both groups face the same new ceiling under 26 U.S.C. §165(d): only 90 percent of wagering losses can be deducted, and never more than wagering gains.

What does "professional gambler" mean to the IRS?

The Internal Revenue Code does not define a professional gambler. The working definition comes from Commissioner v. Groetzinger, 480 U.S. 23, decided February 24, 1987, by a 6–3 vote, with Justice Blackmun writing for the majority (Groetzinger opinion, Cornell LII).

Groetzinger spent 60 to 80 hours a week on wagering, attended the track six days a week for 48 weeks in 1978, and had no other employment. That year he won $70,000 on $72,032 of bets, a net loss of $2,032. The question was whether his gambling was a "trade or business."

The Court held that it was. To be engaged in a trade or business, the taxpayer "must be involved in the activity with continuity and regularity and the taxpayer's primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify." Applied to gambling, the Court concluded that "if one's gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business."

Two details from the case carry weight. Groetzinger lost money for the year and still qualified, so profit in a given year is not a precondition. And the Court's language describes a way of life, not a large bankroll: full time, regular, and aimed at earning a living.

How the IRS weighs the facts

Outside Groetzinger's facts, the question becomes whether the activity is carried on for profit at all. The general framework appears in Treas. Reg. §1.183-2(b), which lists nine factors:

1. The manner in which the taxpayer carries on the activity
2. The expertise of the taxpayer or the taxpayer's advisors
3. The time and effort the taxpayer spends on the activity
4. The expectation that assets used in the activity may appreciate in value
5. The taxpayer's success in carrying on other similar or dissimilar activities
6. The taxpayer's history of income or losses with respect to the activity
7. The amount of occasional profits, if any
8. The financial status of the taxpayer
9. Elements of personal pleasure or recreation

The regulation states that "no one factor is determinative" and that the outcome is not decided by counting how many factors point each way. For a gambler, several factors line up naturally with business practice: keeping complete, business-style books (factor 1), studying the game and tracking results over time (factors 2 and 3), and depending on gambling income rather than funding gambling from a salary (factor 8). The recreation factor cuts the other way for anyone whose play looks like entertainment.

The 90% loss limit in current law

Section 165(d) was rewritten by Public Law 119-21, §70114, effective for "taxable years beginning after December 31, 2025." The current text reads (26 U.S.C. §165, Cornell LII):

"(1) For purposes of losses from wagering transactions, the amount allowed as a deduction for any taxable year— (A) shall be equal to 90 percent of the amount of such losses during such taxable year, and (B) shall be allowed only to the extent of the gains from such transactions during such taxable year.

(2) For purposes of paragraph (1), the term 'losses from wagering transactions' includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction."

Two limits now apply in sequence. First, wagering losses are cut to 90 percent. Second, the result cannot exceed wagering gains for the year. Paragraph (2) folds business expenses incurred "in carrying on any wagering transaction" into the definition of losses, so a professional's expenses are subject to the same 90 percent haircut and the same cap.

That paragraph has a history. In Mayo v. Commissioner, 136 T.C. 81 (2011), the Tax Court held that a professional gambler's non-wager business expenses were not limited by §165(d) and could be deducted under §162(a). The 2017 tax law, Public Law 115-97, §11050, reversed that result for taxable years beginning after December 31, 2017, and before January 1, 2026, by treating such expenses as wagering losses. The 2025 law kept that treatment without an end date and added the 90 percent rule on top.

The IRS has published proposed regulations, REG-113229-25, in Internal Revenue Bulletin 2026-19, which would amend Treas. Reg. §1.165-10 to allow "90 percent of the amount of such losses" but "only to the extent of the gains." The preamble reports that about 670,000 taxpayers claimed an itemized deduction for wagering losses for tax year 2022, out of about 2.3 million who reported wagering gains, which works out to roughly 29 percent by division. The regulations were proposed, not final, when this was written.

Recreational or professional: how the two positions compare

The recreational column follows IRS Topic No. 419, which says winnings are reported on Form 1040 through Schedule 1 and that losses are deductible "only if you itemize your deductions on Schedule A" and "can't be more than the amount of gambling income you reported." The professional column follows the IRS's Form W-2G instructions: "if you are in the trade or business of gambling, report your gambling winnings and losses on Schedule C."

Does professional status lower the tax bill?

Not automatically. A worked example using round numbers shows the trade-offs. Assume $100,000 of wagering gains, $80,000 of wagering losses and, for the professional, $5,000 of expenses such as travel and subscriptions.

Recreational player. All $100,000 is included in income. The deduction is 90 percent of $80,000, or $72,000, which is below the $100,000 cap. It is available only if the player itemizes. A player who would otherwise take the standard deduction gets the benefit only to the extent total itemized deductions exceed it.

Professional. Losses and expenses together are $85,000. Ninety percent of that is $76,500, below the $100,000 cap. Net Schedule C profit is $100,000 minus $76,500, or $23,500. No itemizing is required.

The professional's $23,500 of profit, however, is subject to self-employment tax. IRS Topic No. 554 sets the rate at 12.4 percent for Social Security plus 2.9 percent for Medicare, a combined 15.3 percent, on net earnings from self-employment, applies when those net earnings are $400 or more, and allows half of the tax as a deduction in figuring adjusted gross income. Whether professional status saves money depends on the player's other itemized deductions, income level and the size of that self-employment tax.

The 90 percent rule also creates taxable income in a break-even year. A professional who wins $10,000 and loses $10,000 can deduct $9,000, leaving $1,000 of Schedule C profit despite no economic gain. Under the earlier rule, the same year produced zero.

What records hold up?

Both groups carry the burden of proving losses. IRS Topic No. 419 calls for "an accurate diary or similar record" plus "receipts, tickets, statements, or other records" showing winnings and losses.

IRS Publication 529 lists what the diary should contain:

• "The date and type of your specific wager or wagering activity"
• "The name and address or location of the gambling establishment"
• "The names of other persons present with you at the gambling establishment"
• "The amount(s) you won or lost"

The same publication lists supporting documents such as Forms W-2G, Form 5754, wagering tickets and canceled checks. For someone claiming professional status, the diary does double duty: it substantiates the numbers and also serves as evidence under the regulation's first factor that the activity is run like a business. A professional also needs the ordinary records of any Schedule C filer, covering each expense claimed.

None of this is a substitute for advice on a specific return. The definitions and limits above come from the statute, the Supreme Court and IRS guidance, and the 2026 regulations remain in proposed form.