MaxGhenis · Oct 10, 2026 · Oct 10, 2026 · Oct 10, 2026 · Oct 11, 2026 · Oct 11, 2026
diff --git a/changelog.d/fix-gambling-winnings-gross-income.fixed.md b/changelog.d/fix-gambling-winnings-gross-income.fixed.md
@@ -0,0 +1 @@
+Count gambling winnings in federal gross income, limit the wagering losses deduction to 90% of losses from 2026 and to the head's and spouse's gambling, treat it as a Schedule A itemized deduction, and align the states that tax gambling winnings or build on federal itemized deductions.
diff --git a/policyengine_us/parameters/gov/irs/deductions/deductions_if_itemizing.yaml b/policyengine_us/parameters/gov/irs/deductions/deductions_if_itemizing.yaml
@@ -2,12 +2,10 @@ description: Deductions from taxable income if itemizing.
 values:
   2018-01-01:
     - qualified_business_income_deduction
-    - wagering_losses_deduction
     - itemized_taxable_income_deductions
 
   2025-01-01:
     - qualified_business_income_deduction
-    - wagering_losses_deduction
     - itemized_taxable_income_deductions
     - tip_income_deduction
     - overtime_income_deduction
@@ -16,7 +14,6 @@ values:
 
   2029-01-01:
     - qualified_business_income_deduction
-    - wagering_losses_deduction
     - itemized_taxable_income_deductions
 
 metadata:

diff --git a/policyengine_us/parameters/gov/irs/deductions/itemized/limitation/excluded_deductions.yaml b/policyengine_us/parameters/gov/irs/deductions/itemized/limitation/excluded_deductions.yaml
@@ -5,15 +5,14 @@ values:
   # and wagering losses (section 165(c)(2), (c)(3) and (d)).
   # investment_interest_expense is the investment interest that
   # interest_deduction includes through non_mortgage_interest.
-  # wagering_losses_deduction is deducted outside
-  # total_itemized_taxable_income_deductions, so it never enters the base.
   # The 2017 worksheet also removes qualified disaster-relief contributions
   # (P.L. 115-63 sec. 504(a)(3), P.L. 115-123 sec. 20104(a)(3)), which are
   # not modeled.
   2009-01-01:
     - medical_expense_deduction
     - investment_interest_expense
     - casualty_loss_deduction
+    - wagering_losses_deduction
 metadata:
   unit: list
   period: year

diff --git a/policyengine_us/parameters/gov/irs/deductions/itemized/wagering_losses/rate.yaml b/policyengine_us/parameters/gov/irs/deductions/itemized/wagering_losses/rate.yaml
@@ -0,0 +1,17 @@
+description: The US allows this share of wagering losses as an itemized deduction, up to wagering gains.
+values:
+  0000-01-01: 1
+  # P.L. 119-21 sec. 70114 rewrote section 165(d)(1) for taxable years
+  # beginning after December 31, 2025.
+  2026-01-01: 0.9
+metadata:
+  unit: /1
+  period: year
+  label: Wagering losses deduction rate
+  reference:
+    - title: 26 U.S. Code § 165(d) - Wagering losses
+      href: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section165&num=0&edition=prelim
+    - title: P.L. 119-21, sec. 70114 - Extension and modification of limitation on wagering losses
+      href: https://www.govinfo.gov/content/pkg/PLAW-119publ21/pdf/PLAW-119publ21.pdf#page=96
+    - title: 2024 Instructions for Schedule A (Form 1040), line 16 - Gambling losses
+      href: https://www.irs.gov/pub/irs-prior/i1040sca--2024.pdf#page=11
diff --git a/policyengine_us/parameters/gov/irs/deductions/itemized_deductions.yaml b/policyengine_us/parameters/gov/irs/deductions/itemized_deductions.yaml
@@ -7,6 +7,8 @@ values:
     - medical_expense_deduction
     - casualty_loss_deduction
     - misc_deduction
+    # Gambling losses, Schedule A line 16 (other itemized deductions).
+    - wagering_losses_deduction
   2020-01-01:
     - charitable_deduction  
     - charitable_deduction_for_non_itemizers
@@ -15,13 +17,22 @@ values:
     - medical_expense_deduction
     - casualty_loss_deduction
     - misc_deduction
+    # Gambling losses, Schedule A line 16 (other itemized deductions).
+    - wagering_losses_deduction
   2022-01-01:
     - charitable_deduction
     - interest_deduction
     - salt_deduction
     - medical_expense_deduction
     - casualty_loss_deduction
     - misc_deduction
+    # Gambling losses, Schedule A line 16 (other itemized deductions).
+    - wagering_losses_deduction
 metadata:
   unit: list
   label: itemized deductions
+  reference:
+    - title: 2024 Schedule A (Form 1040), lines 4-17
+      href: https://www.irs.gov/pub/irs-prior/f1040sa--2024.pdf#page=1
+    - title: 2024 Instructions for Schedule A (Form 1040), line 16 - Other itemized deductions
+      href: https://www.irs.gov/pub/irs-prior/i1040sca--2024.pdf#page=11
diff --git a/policyengine_us/parameters/gov/irs/gross_income/sources.yaml b/policyengine_us/parameters/gov/irs/gross_income/sources.yaml
@@ -33,6 +33,9 @@ values:
     - taxable_retirement_distributions
     - taxable_roth_conversions
     - miscellaneous_income
+    # Gambling winnings, including lotteries and raffles (Schedule 1 line
+    # 8b). Only itemizers deduct the losses (wagering_losses_deduction).
+    - gambling_winnings
     # Listed separately on 1040 line 8g.
     - ak_permanent_fund_dividend
     # Alimony from divorces executed before the TCJA cutoff (Schedule 1 line 2a).
@@ -51,7 +54,11 @@ metadata:
       href: https://www.law.cornell.edu/uscode/text/26/111
     - title: 26 U.S. Code § 61(a)(14) - Income from an interest in an estate or trust
       href: https://www.law.cornell.edu/uscode/text/26/61#a_14
-    - title: 2024 Schedule 1 (Form 1040), line 5 - Rental real estate, royalties, partnerships, S corporations, trusts, etc.
+    - title: 2024 Schedule 1 (Form 1040), line 5 - Rental real estate, royalties, partnerships, S corporations, trusts, etc., and line 8b - Gambling
       href: https://www.irs.gov/pub/irs-prior/f1040s1--2024.pdf#page=1
     - title: 2024 Instructions for Schedule E (Form 1040), Part III - Income or Loss From Estates and Trusts
       href: https://www.irs.gov/pub/irs-prior/i1040se--2024.pdf#page=11
+    - title: 2024 Instructions for Form 1040, Schedule 1 line 8b - Gambling
+      href: https://www.irs.gov/pub/irs-prior/i1040gi--2024.pdf#page=85
+    - title: 2025 Instructions for Form 1040, Schedule 1 line 8b - Gambling
+      href: https://www.irs.gov/pub/irs-prior/i1040gi--2025.pdf#page=91
diff --git a/policyengine_us/parameters/gov/states/al/tax/income/agi/gross_income_sources.yaml b/policyengine_us/parameters/gov/states/al/tax/income/agi/gross_income_sources.yaml
@@ -19,6 +19,9 @@ values:
     - partnership_s_corp_income
     - farm_operations_income
     - farm_rent_income
+    # Prizes and awards: contests, lotteries and gambling winnings (Form 40
+    # page 2, Part I, other income), of the head and spouse.
+    - al_gambling_winnings
     # Form 40, Part I, line 5: rents, royalties, partnerships, S corporations,
     # trusts and estates (Alabama Schedule E, Part II).
     - estate_income

diff --git a/policyengine_us/parameters/gov/states/al/tax/income/deductions/itemized/sources.yaml b/policyengine_us/parameters/gov/states/al/tax/income/deductions/itemized/sources.yaml
@@ -12,6 +12,9 @@ values:
     - al_casualty_loss_deduction # Section (a), (6)
     - al_misc_deduction # Section (a), (23)
     - al_interest_deduction # Section (a), (2)
+    # Schedule A line 25: gambling losses to the extent of gambling winnings,
+    # not subject to the 2% limit.
+    - al_gambling_loss_deduction
 
 metadata:
   unit: list
@@ -28,3 +31,5 @@ metadata:
       href: https://www.revenue.alabama.gov/ultraviewer/viewer/basic_viewer/index.html?form=2024/01/23f40schabdc_blk.pdf#page=1
     - title: 2024 Alabama Income Tax Instructions
       href: https://www.revenue.alabama.gov/wp-content/uploads/2025/01/24f40bk.pdf#page=18
+    - title: 2025 Alabama Income Tax Instructions, Schedule A line 25 - gambling losses
+      href: https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40bk.pdf#page=21
diff --git a/...us/parameters/gov/states/ca/tax/income/deductions/itemized/limit/excluded_deductions.yaml b/...us/parameters/gov/states/ca/tax/income/deductions/itemized/limit/excluded_deductions.yaml
@@ -6,12 +6,17 @@ values:
     # replaces the federal one in the pre-limitation total.
     - ca_casualty_loss_deduction
     - non_mortgage_interest
+    # Itemized Deductions Worksheet line 2: "plus any gambling losses
+    # included on line 16".
+    - ca_wagering_losses_deduction
 
 metadata:
   unit: list
   period: year
   label: itemized deductions excluded from CA high-AGI limitation
   reference:
+  - title: 2025 Form 540 booklet, Schedule CA (540) Itemized Deductions Worksheet, line 2
+    href: https://www.ftb.ca.gov/forms/2025/2025-540-booklet.pdf#page=68
   - title: 2021 Form 540 Schedule CA instructions
     href: https://www.ftb.ca.gov/forms/2021/2021-540-ca-instructions.html
   - title: 2022 Form 540 Schedule CA instructions

diff --git a/policyengine_us/parameters/gov/states/de/tax/income/deductions/itemized/sources.yaml b/policyengine_us/parameters/gov/states/de/tax/income/deductions/itemized/sources.yaml
@@ -5,6 +5,8 @@ values:
     - charitable_deduction
     - interest_deduction
     - casualty_loss_deduction
+    # PIT-RSA line 16, other itemized deductions permitted under federal law.
+    - wagering_losses_deduction
 metadata:
   unit: list
   period: year
@@ -14,6 +16,6 @@ metadata:
       href: https://revenuefiles.delaware.gov/2022/TY22_PIT-RSA_2022-02_PaperInteractive.pdf
     - title: Code of Delaware. Title30. CHAPTER 11. Personal Income Tax, § 1109
       href: https://delcode.delaware.gov/title30/c011/sc02/index.html
-    - title: 2025 Delaware Individual Income Tax Return Instructions
+    - title: "2025 Delaware Individual Income Tax Return Instructions #page 7,12"
       href: https://revenuefiles.delaware.gov/2025/PITForms_Instructions/Instructions/PIT-RES_Instructions_2025-01.pdf#page=7
 
diff --git a/policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/sources.yaml b/policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/sources.yaml
@@ -6,6 +6,8 @@ values:
     - hi_interest_deduction
     - hi_casualty_loss_deduction
     - hi_salt_deduction
+    # Worksheet A-6, line 30: gambling losses, up to gambling winnings.
+    - wagering_losses_deduction
 metadata:
   unit: list
   period: year
@@ -23,5 +25,5 @@ metadata:
       href: https://files.hawaii.gov/tax/forms/2018/n11ins.pdf#page=19
     - title: Hawaii Income Tax Law, Chapter 235, Section 235-2.4
       href: https://files.hawaii.gov/tax/legal/hrs/hrs_235.pdf#page=10
-    - title: 2025 Hawaii N-11 Instructions Itemized Deductions
-      href: https://files.hawaii.gov/tax/forms/current/n11ins.pdf#page=17
+    - title: "2025 Hawaii N-11 Instructions Itemized Deductions #page 17,19"
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=17
diff --git a/policyengine_us/parameters/gov/states/ia/tax/income/gross_income/sources.yaml b/policyengine_us/parameters/gov/states/ia/tax/income/gross_income/sources.yaml
@@ -18,6 +18,8 @@ values:
     - farm_operations_income
     - taxable_unemployment_compensation
     - miscellaneous_income
+    # IA 1040 line 13, gambling winnings, of the head and spouse.
+    - ia_gambling_winnings
 
 metadata:
   unit: list

diff --git a/...e_us/parameters/gov/states/ky/tax/income/deductions/itemized/wagering_losses_allowed.yaml b/...e_us/parameters/gov/states/ky/tax/income/deductions/itemized/wagering_losses_allowed.yaml
@@ -0,0 +1,18 @@
+description: Kentucky allows the federal wagering losses deduction as an itemized deduction if this is true.
+values:
+  2000-01-01: true
+  # For 2018 Kentucky disallowed every section 165 loss.
+  2018-01-01: false
+  # 2019 Ky. Acts ch. 151, sec. 37 restored wagering losses allowed under
+  # section 165(d), for taxable years beginning on or after January 1, 2019
+  # (sec. 83).
+  2019-01-01: true
+metadata:
+  unit: bool
+  period: year
+  label: Kentucky wagering losses itemized deduction allowed
+  reference:
+    - title: "2019 Ky. Acts ch. 151, sec. 37 (KRS 141.019(2)(b)) and sec. 83 #page 60,112"
+      href: https://apps.legislature.ky.gov/law/acts/19RS/documents/0151.pdf#page=60
+    - title: TY2018 Kentucky Publication 1345, itemized deductions obsolete for tax year 2018
+      href: https://revenue.ky.gov/Software-Developer/Software%20Development%20Documents/TY2018%20KY%20Publication%201345-Handbook%20for%20Electronic%20Filing.pdf#page=9
diff --git a/policyengine_us/parameters/gov/states/mi/tax/income/subtractions.yaml b/policyengine_us/parameters/gov/states/mi/tax/income/subtractions.yaml
@@ -11,6 +11,20 @@ values:
     - mi_interest_dividends_capital_gains_deduction # Line 27
     - mi_529_deduction
     - salt_refund_income # Line 16
+  # 2021 PA 168 added a deduction for the wagering losses a casual gambler
+  # deducts on the federal return, for tax years beginning in 2021.
+  2021-01-01:
+    - us_govt_interest # Line 10
+    - military_retirement_pay # Line 11
+    - taxable_social_security # Line 14
+    - military_service_income # Line 14
+    - section_22_income # Line 22
+    - mi_standard_deduction  # Line 24 & 25
+    - mi_pension_benefit  # Line 26
+    - mi_interest_dividends_capital_gains_deduction # Line 27
+    - mi_529_deduction
+    - salt_refund_income # Line 16
+    - mi_wagering_losses_deduction # Line 23 (2025), miscellaneous subtractions
   2026-01-01:
     - us_govt_interest # Line 10
     - military_retirement_pay # Line 11
@@ -24,6 +38,7 @@ values:
     - mi_qualified_tips_deduction  # Qualified tips (PA 24 of 2025), TY2026-2028
     - mi_qualified_overtime_deduction  # Qualified overtime compensation (PA 24 of 2025), TY2026-2028
     - salt_refund_income # Line 16
+    - mi_wagering_losses_deduction # Line 23 (2025), miscellaneous subtractions
 metadata:
   unit: list  
   label: Michigan taxable income subtraction sources  
@@ -35,6 +50,10 @@ metadata:
       href: https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/IIT/TY2023/BOOK_MI-1040.pdf#page=47
     - title: Michigan Legal Code Section 206.30 
       href: https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-206-30
+    - title: Michigan Treasury notice - New Tax Treatment of Wagering Losses for Casual Gamblers (2021 PA 168)
+      href: https://www.michigan.gov/taxes/rep-legal/notices/notice-new-tax-treatment-of-wagering-losses-for-casual-gamblers-under-the-michigan-income-tax-act
+    - title: 2025 MI-1040 booklet, Schedule 1 line 23 - Miscellaneous subtractions (wagering losses)
+      href: https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/IIT/TY2025/MI-1040-Book.pdf#page=16
     - title: Michigan Standard Deduction
       href: https://web.archive.org/web/20250202140014/https://www.michigan.gov/taxes/iit/retirement-and-pension-benefits/michigan-standard-deduction
     - title: Michigan 2022 MI-1040 Individual Income Tax FORMS AND INSTRUCTIONS

diff --git a/policyengine_us/parameters/gov/states/mt/tax/income/deductions/itemized/misc_deductions.yaml b/policyengine_us/parameters/gov/states/mt/tax/income/deductions/itemized/misc_deductions.yaml
@@ -6,13 +6,22 @@ description: Montana counts these sources as miscellaneous deductions.
 values:
   2021-01-01:
     - casualty_loss_deduction
-  2024-01-01: []
+    # Gambling losses, up to gambling winnings (2023 Form 2 instructions).
+    - mt_wagering_losses_deduction
+  # From 2024 Montana starts from federal taxable income, which carries the
+  # federal itemized deductions.
+  2024-01-01:
+    - mt_wagering_losses_deduction
 
 metadata:
   unit: list
   label: Montana miscellaneous deductions 
   period: year
   reference:
+    - title: 2023 Montana Form 2 instructions, itemized deductions - gambling losses
+      href: https://revenue.mt.gov/files/forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2023_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=39
+    - title: 2025 Montana Form 2 instructions, line 2 - federal standard deduction or federal itemized deductions
+      href: https://revenue.mt.gov/files/forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2025_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=13
     - title: Montana Individual Income Tax Return (Form 2) 2024
       href: https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2024_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf#page=8
     - title: Montana Individual Income Tax Return (Form 2) 2022

diff --git a/policyengine_us/parameters/gov/states/pa/tax/income/nontaxable_income_sources.yaml b/policyengine_us/parameters/gov/states/pa/tax/income/nontaxable_income_sources.yaml
@@ -8,9 +8,13 @@ values:
     - taxable_social_security
     - us_govt_interest
     - salt_refund_income
+    # PA-40 Schedule T line 4: the cost of bets comes off the winnings.
+    - pa_gambling_loss_offset
 metadata:
   unit: currency-USD
   label: PA nontaxable income sources
   reference:
     - title: 2021 Pennsylvania PIT Return Instructions (PA-40 IN) 
       href: https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/formsandpublications/formsforindividuals/pit/documents/2021/2021_pa-40in.pdf#page=8
+    - title: 2025 PA-40 Schedule T - Gambling and Lottery Winnings
+      href: https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/formsandpublications/formsforindividuals/pit/documents/2025/2025_pa-40t.pdf#page=1
diff --git a/...gine_us/parameters/gov/states/va/tax/income/deductions/itemized/reduction/applicable.yaml b/...gine_us/parameters/gov/states/va/tax/income/deductions/itemized/reduction/applicable.yaml
@@ -7,11 +7,15 @@ values:
     - real_estate_taxes
     - casualty_loss_deduction
     - va_capped_state_and_local_sales_or_income_tax
+    # Schedule A line 16a, gambling losses.
+    - wagering_losses_deduction
 metadata:
   unit: list
   period: year
   label: Virginia itemized deductions reduction applicable deduction sources
   reference:
+    - title: "2025 Virginia Schedule A Itemized Deductions, line 16a and Limited Itemized Deduction Worksheet line 1 #page 1-2"
+      href: https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2025/schedule-2025.pdf#page=1
     - title: 2024 Virginia Schedule A Itemized Deductions
       href: https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2024/schedule-2024.pdf#page=2
     - title: 2023 Virginia Schedule A Itemized Deductions

diff --git a/...ngine_us/parameters/gov/states/va/tax/income/deductions/itemized/reduction/reducible.yaml b/...ngine_us/parameters/gov/states/va/tax/income/deductions/itemized/reduction/reducible.yaml
@@ -3,13 +3,17 @@ values:
   2013-01-01:
     - medical_expense_deduction
     - investment_interest_expense
-    - gambling_losses
+    # Worksheet line 2: "any gambling losses included on Line 16a", which
+    # is the deduction allowed, not the losses incurred.
+    - wagering_losses_deduction
     - casualty_loss_deduction
 metadata:
   unit: list
   period: year
   label: Virginia itemized deductions reduction reducible deduction sources
   reference:
+    - title: 2025 Virginia Schedule A, Limited Itemized Deduction Worksheet line 2
+      href: https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2025/schedule-2025.pdf#page=2
     - title: 2024 Virginia Schedule A Itemized Deductions
       href: https://www.tax.virginia.gov/sites/default/files/taxforms/individual-income-tax/2024/schedule-2024.pdf#page=2
     - title: 2023 Virginia Schedule A Itemized Deductions

diff --git a/policyengine_us/reforms/crfb/senior_deduction_extension.py b/policyengine_us/reforms/crfb/senior_deduction_extension.py
@@ -10,7 +10,6 @@ def modify_parameters(parameters):
             start=instant("2029-01-01"),
             value=[
                 "qualified_business_income_deduction",
-                "wagering_losses_deduction",
                 "itemized_taxable_income_deductions",
                 "additional_senior_deduction",
             ],

diff --git a/policyengine_us/reforms/states/mn/walz/mn_walz_hf1938.py b/policyengine_us/reforms/states/mn/walz/mn_walz_hf1938.py
@@ -124,10 +124,17 @@ def formula(tax_unit, period, parameters):
             )
             # ... calculate itemized deductions offset
             p = parameters(period).gov.states.mn.tax.income.deductions.itemized
+            # As in the baseline: Minn. Stat. 290.0122, subd. 2(d)(3) leaves
+            # the subd. 8 losses, including wagering losses, out of the
+            # limitation.
             exempt_deds = add(
                 tax_unit,
                 period,
-                ["medical_expense_deduction", "mn_casualty_loss_deduction"],
+                [
+                    "medical_expense_deduction",
+                    "mn_casualty_loss_deduction",
+                    "wagering_losses_deduction",
+                ],
             )
             net_deds = max_(0, mn_itm_deds - exempt_deds)
             net_deds_offset = p.reduction.alternate.rate * net_deds
Original file line number	Diff line number	Diff line change
		@@ -0,0 +1 @@
		Count gambling winnings in federal gross income, limit the wagering losses deduction to 90% of losses from 2026 and to the head's and spouse's gambling, treat it as a Schedule A itemized deduction, and align the states that tax gambling winnings or build on federal itemized deductions.