New York Prediction Market Taxes: Can You Still Deduct 100% of Gambling Losses?

New York has an unusual advantage for gambling treatment: its itemized deduction for gambling losses is calculated under the federal rules that applied in 2017, and you can itemize on your New York return even if you took the standard deduction federally. For 2025 that means losses up to winnings. Whether it stays at 100% for 2026, despite the federal 90% limit, should be confirmed in the 2026 IT-196 instructions, which we haven't seen yet. The state has published nothing on event contracts.

OddsFile is software, not tax advice. The IRS has not issued guidance on how prediction-market contracts are taxed, and we found no New York guidance either. This article explains the options and the sources behind them; a tax professional can tell you which position fits your situation.

How New York starts

New York's return starts from federal adjusted gross income, so your federal treatment flows in:

From there you subtract the New York standard deduction or New York itemized deductions, whichever you choose.

The IT-196 gambling loss rule

The 2025 Form IT-196 instructions say the New York itemized deduction for gambling losses on line 29 is calculated using the federal rules that applied to tax year 2017. Losses can't exceed your winnings for the year, and you must report your full winnings as income on Form IT-201 or IT-203, line 16. Filers of federal Form 1040NR can't claim it.

The same instructions say you can itemize for New York even if you didn't itemize on your federal return. So the federal "standard deduction trap" doesn't necessarily apply on the state return.

The New York standard deduction for a single filer who can't be claimed as a dependent is $8,000, well below the federal $16,100. So gambling losses clear it sooner.

2026: the open question

Section 165(d) cuts federal losses to 90% from 2026. New York's stated method uses 2017 federal rules, under which the 90% limit didn't exist. If the 2026 IT-196 instructions keep that language, New York filers could deduct 100% of losses up to winnings on the state return, even as the federal return allows 90%.

We can't confirm this yet. The 2026 instructions aren't out, and a bill, S7876, would set New York's gambling loss deduction at zero percent of the federal amount. We found no sign it has been enacted. Read the 2026 instructions before filing.

Worked example

A New York resident, single, reports $50,000 of winning markets and $45,000 of losing ones under gambling treatment in 2026, with no other itemized deductions. Assume a 6% New York marginal rate for illustration, ignoring city tax. This assumes the 2017-rules language carries into 2026.

Under capital treatment, the net $5,000 would go to New York at the same rate, for $300. New York softens gambling treatment, but capital treatment is still cheaper here. Note also that the deduction works only if you actually itemize New York's way, and if your other deductions are in the same picture, the numbers shift.

Capital treatment in New York

New York taxes capital gains as ordinary income. There's no separate rate. A net capital loss follows your federal figure through AGI, up to the $3,000 federal limit, since New York starts from federal AGI. That's different from New Jersey and Pennsylvania, which don't start from AGI and don't allow a loss to cross categories.

New York City

City residents pay city income tax as well, also starting from New York income. The city uses the same deduction choice as the state return, so the instructions note that taking the larger of your New York State itemized or standard deductions will usually lower both taxes. This adds meaningful cost in a high-income year. Include it when you set money aside.

Yonkers and nonresidents

Yonkers has its own surcharge. Nonresidents who earned no New York-source income generally don't report trading profit to New York just because they used a New York-based app, but sourcing rules for intangible gains are worth checking with a preparer.

Rates

New York's rates are progressive. A 2026 rate cut is being phased in for lower and middle brackets, and top brackets are higher. The state's estimated tax instructions are the place to check your numbers, and they cover state, city and Yonkers estimated payments.

Records

New York's deduction follows the federal record standard, so keep an accurate diary or similar record: date, market, amount won or lost, and supporting statements. Your session grouping also affects both federal and state numbers. See the 90% limit.

What to do

1. Keep gross winnings and losses by market.
2. Run both itemized and standard on your New York return, even if you don't itemize federally.
3. Wait for the 2026 IT-196 instructions before you lock in a 100% assumption.
4. Pay estimated tax to New York separately, if needed.
5. Include city tax in your plan if you're a resident.

Run the free OddsFile check: paste a Polymarket or Hyperliquid address and see your 2026 P&L under each treatment, no signup. The gross numbers it shows are what the IT-196 calculation needs.

FAQ

Can I itemize in New York if I took the federal standard deduction?

Yes. The IT-196 instructions say you can.

Does New York follow the 90% limit?

Its 2025 instructions use 2017 federal rules, under which there was no 90% limit. For 2026, wait for the new instructions.

Are gambling losses limited to winnings in New York?

Yes. The instructions say losses can't exceed your winnings for the year.

Does New York have a lower capital gains rate?

No. Capital gains are taxed as ordinary income in New York.