'Phantom money': Gamblers could be hit hard by 'obscure' piece of GOP tax bill

An obscure provision tucked into the Republican megabill could wipe out professional gamblers and drive many bettors back into illegal operations.

Lawmakers, professional poker players and sports bettors alike are demanding a change to the GOP tax and spending bill signed into law last week by president Donald Trump, which lowers the deduction on gambling losses from 100 percent to 90 percent – and thus requiring them to pay taxes on so-called "phantom" winnings, reported CNN.

“If they won $100,000 and lost $100,000, they still owe money on the $10,000” because only $90,000 can now be deducted, said Rep. Dina Titus (D-NV). “It’s just really not good policy to have you paying taxes on phantom money that you didn’t earn."

A 100-percent deduction on gambling losses up to the amount of reported winnings has been U.S. tax policy for more than five decades, according to the American Gaming Association, but congressional sources told CNN the Senate had to change the provision to comply with its reconciliation rules because Republicans didn't count the costs of extending the 2017 Trump tax cuts against the deficit.

“This wasn’t about any policy aims on gambling or a referendum on gambling. It was purely for procedural compliance,” a gambling industry official told CNN.

Titus introduced the one-page FAIR Bet Act to return deductions their previous 100-percent rate, saying the GOP change could drive gamblers to offshore casinos, where they wouldn't pay any U.S. taxes, or lie about their gambling losses.

"They pretended or suggested that this would only impact professional poker players, but that's not true," Titus said. "It's anybody who gambles. It's maybe somebody bets on a football game, or plays a slot machine, or is just a small poker player, not a real professional. So it has a wide-reaching impact."

Sen. Catherine Cortez Masto (D-NV) is also working on a fix in the Senate, and gambling professionals who wager large amounts of money for small amounts of profits say the change could drive them out of business entirely.

“In poker, it means the players who are scraping by – earning their living on an especially high-volume, low-edge – are not going to be able to make it,” said Phil Galfond, a professional poker player and coach. “It just doesn’t feel right you can have a losing year and then pay tax on that losing year.”

Tax professionals who specialize in gambling taxes say the GOP bill puts pros and high rollers alike at risk of getting taxed on non-existent winnings.

“Certain kinds of gambling are going to probably be untenable under this law because they’re high-volume, low margin,” said gambling tax specialist Russell Fox. “Sports betting is going to be hit. The professionals making a living in that are going to have issues.”