The Oklahoma Bar Journal May 2026

than itemizing. 8 For those taxpay ers, gambling winnings remain taxable, and the loss limitation is largely irrelevant. Second, the amendment does not guarantee that a losing gambler owes tax on phantom income. A taxpayer whose losses exceed gains will rarely have taxable gambling income after applying the §165(d) ceiling, even after the 90% amend ment. The more common phantom income case is still rather rare: a high-volume bettor who is flat or slightly positive but whose gross wins and losses are enormous. Third, Oklahoma practitioners should expect the change to be treated primarily as a federal income tax problem. Oklahoma starts with federal adjusted gross income (AGI), not federal taxable income, and for many recreational bettors, the wager- ing loss limitation operates as an itemized deduction below the AGI line. 9 In addition, Oklahoma caps most itemized deductions (excluding charitable contributions and medical expenses) at $17,000, so high-volume bettors whose federal gambling-loss deductions would be very large

kept the TCJA concept that “losses” for §165(d) purposes include certain wagering-related expenses; the 90% cap now applies to that expanded base. Second, the cap still operates by year-end aggregation. It is not computed per wager, nor is it lim ited to a subset of wagers. The Churn Problem: An Example Under amended §165(d), even a net loser may show gambling income, and a net winner may see their expected gambling income overstated. The impact of the new law is most easily reflected, how ever, by a break-even bettor with significant gross volume. Consider a taxpayer with $1 million in gambling winnings and $1 million in gambling losses for the year. Under prior law, assuming the tax payer could itemize and substantiate losses, the taxpayer would report $1 million of gambling income and deduct $1 million of losses, produc ing zero net gambling income. Under amended §165(d), the deductible loss amount is limited to 90% of losses ($900,000) (ignoring wagering-related expenses for simplicity) and limited to winnings. The winnings ceiling does not bind here, so the deduction becomes $900,000. The taxpayer reports $1 million of income and deducts $900,000, producing $1 million of taxable income despite the breakeven economic result. Limits on the Amendment’s Reach While the stylized example above may make §165(d) appear unduly burdensome, some practi cal qualifiers temper the reach of the amendment. First, many casual gamblers receive no federal tax benefit from wagering losses under any ver sion of §165(d) because they take the standard deduction rather

There is a final limitation on the reach of the amendment, inherent in the nature of tax increases: They are (dis)incentives that drive tax payers to seek an avoidance mecha nism. If wagering has now become more expensive, the taxpayer’s nat ural next question is whether some products are not “wagering” at all. As more fully described in Part II, some bettors believe they have found their avoidance mechanism in event contracts and prediction markets. PART II: EVENT CONTRACTS AND PREDICTION MARKETS What an Event Contract Is (and Why It Looks Like a Wager) An event contract is a derivative whose payoff depends on an event, contingency or value. Generally, they are framed as a binary prop osition: A contract might pay $1 if Team A wins a game and $0 if it does not. Traders buy and sell “yes” and “no” positions at prices between $0 and $1, and the price reflects a market-implied probabil ity of the event’s occurrence (sub ject to fees and other frictions). 11 From the user’s perspective, an event contract can feel like sports

frequently hit the Oklahoma deduction cap regardless. 10

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.

36 | MAY 2026

THE OKLAHOMA BAR JOURNAL