The Oklahoma Bar Journal May 2026

T axation

Event Contracts and the 2026 Wagering Loss Limitation: A Tax and Federalism Note for Oklahoma Practitioners By Jay P. Eischen I N 2026, SOME GAMBLERS MAY FIND THEMSELVES OWING FEDERAL INCOME TAX on a number that feels wrong. The reason is a small numeric change: For taxable years beginning after Dec. 31, 2025, amended Internal Revenue Code (IRC) §165(d) no longer allows gambling losses to offset gambling winnings one-to-one. Rather, the code will now permit a deduction for only 90% of aggregate wagering losses (including certain wagering- related expenses), even though losses remain deductible only up to wagering gains. 1 Thus, for high-volume bettors, the statute can now decouple taxable results from economic results.

encounter the new §165(d) limita tion and event contracts. Part I explains the 2026 change to §165(d). Part II defines event contracts and prediction markets and briefly summarizes their regulatory environment. Part III then examines two interesting and undecided legal questions in this space: whether these con tracts can operate as a de facto end run around state gambling law through federal preemption and whether their federal tax treatment will track wagering rules or a derivatives regime after Congress has made high-volume betting materially more expensive on an after-tax basis.

PART I: THE AMENDMENT TO §165(D) Baseline Rule and the TCJA Expansion Section 165(d) has long limited deductions for “losses from wager ing transactions” to “the extent of the gains from such transactions.” 2 For most individuals, the practical effect is familiar: Gambling win nings are included in gross income, and gambling losses are deductible only up to winnings, typically as an itemized deduction. 3 Congress complicated the picture in 2017 through the Tax Cuts and Jobs Act (TCJA). For taxable years beginning after Dec. 31, 2017, Congress provided

That change arrives as the public is being offered new ways to take positions on uncertain outcomes without placing a traditional “bet.” So-called “event contracts” and “prediction markets” allow users to buy and sell contracts that pay out based on sporting events, election outcomes, awards shows and other contingent events. The leading domestic exchange listed examples are offered through exchanges regulated by the Commodity Futures Trading Commission (CFTC), which mat ters because federal law both authorizes and limits those listings. What follows is a practical map for Oklahoma lawyers who may

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

34 | MAY 2026

THE OKLAHOMA BAR JOURNAL