Leadership looking out for the best interests of horse racing are expecting a recent tax change on gambling winnings that would be negative for horseplayers will be changed back to the previous standard.
Speaking at The Jockey Club's Round Table Conference on Matters Pertaining to Racing July 31 in Saratoga Springs, N.Y., Shawn Smeallie, an industry lobbyist through his ACG Advocacy, said he believes a tax change that would limit the amount of losses gamblers could claim against winnings included in the recently passed "Big Beautiful Bill" could be rescinded before it goes into effect in 2026. He expects a tax bill this fall to include language that would rescind the change to gambling winnings.
At the Round Table Smeallie outlined why the tax changes on gambling in the Big Beautiful Bill would potentially be damaging for the sport.
"One tax increase that did sneak into the bill, unbeknownst to the very powerful American Gaming Association, was a provision allowing only 90% deduction for gambling losses," Smeallie said at the Round Table. "This would actually create a scenario for gamblers where they would have to pay taxes on their losses.
"Legislation already has been introduced in both the House and Senate to restore 100% deductibility, and I am told that there's going to be a tax bill later this fall, and this fix will be included."
Smeallie called on the audience of prominent industry leaders, owners, and breeders, to continue to communicate with lawmakers on issues important to the industry. He said this issue is most assuredly one of those.
The change itself falls into one of those head scratchers that sometimes only Washington can come up with. Bettors pay taxes on gambling winnings, but if a player's losses are more than his winnings in a given year, one would reasonably think that player did not have winnings to claim. But the change currently in place would allow bettors to only claim up to 90% of their losses against winnings. As noted in this column space in July, it's conceivable that big bettors who actually lost money in their wagering in a given year could owe taxes on gambling income.
Think of a player who has $300,000 in total gambling winnings but $320,000 in gambling losses. That player has finished down $20,000 for the year, but because only 90% of the losses can be claimed—a total of $288,000—the player would need to pay taxes on $12,000 in gambling winnings.
The good news is that powerful gaming interests such as the AGA also want this change to be returned to the previous standard. Racing has joined forces with them.
According to news reports covering Washington, Sen. Ted Cruz (a Texas Republican) along with Senators Cortez Masto and Jacky Rosen of Nevada (both Democrats) and Bill Hagerty (a Tennessee Republican) favor returning to the previous standard.
Most of Smeallie's presentation provided a behind-the-scenes look at the industry's successful efforts to quickly bring attention to other unfavorable provisions in early versions of the Big Beautiful Bill that the National Thoroughbred Racing Association and industry were able to have removed.
The biggest victory occurred in the final version of the bill. It makes 100% bonus depreciation permanent after early versions of the bill put into question bonus depreciation would be included at all. In making 100% bonus depreciation permanent, the industry benefits and allows for planning by farms and owners, as qualifying property includes equipment, fencing, land improvements, barns, and most horse purchases (with some exceptions).
Smeallie encouraged the racing leaders, owners, and breeders in attendance at the Round Table to stay active.
"The industry is fortunate to have what is called in the lobbying world 'strong grassroots support.' Many of you in this room, I would say the vast majority of you in this room, have personal relationships with policy makers in Washington. And if you don't, you probably have the ability to easily develop them," Smeallie said. "Your voices make a difference with key decision-makers. We need your help on issues important to the industry, and I can assure you, there will always be issues.
"We are a national, nationwide industry, not without controversy, whether it's visas for backstretch employees or efforts to weaken (the Horseracing Integrity and Safety Authority). If this (depreciation) tax change should rear its ugly head again, we need our champions ready, able, and willing."
