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Are Gambling Losses Tax Deductible

Do you roll the dice? Enjoy the slot machines? Even as a casual gambler, your winnings are fully taxable and must be reported on your tax return. Learn more about how the Tax Cuts and Jobs Act impacts gambling.

There are unique considerations when it comes to disclosing gambling wins and losses on your tax return….modified recently under the Tax Cuts and Jobs Act (TCJA). If you gamble, make sure you understand the tax consequences.

First off—what counts as gambling in the eyes of the IRS?

Gambling income includes (but is not limited to)

• Winnings from
• Lotteries
• Raffles
• Horse races
• Casinos
• Cash winnings
• Fair market value of prizes (like cars and trips)

115–97, § 11050(a), inserted at end “For purposes of the preceding sentence, in the case of taxable years beginning after December 31, 2017, and before January 1, 2026, the term ‘losses from wagering transactions’ includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction.”. A gambler not in the trade or business of gambling (a 'casual gambler') can deduct wagering losses as a deduction not subject to the 2%- of - adjusted - gross - income threshold (i.e., not among miscellaneous itemized deductions the TCJA suspended for tax years 2018 through 2025) on Schedule A, Itemized Deductions, but only to the extent of the winnings.

The general rules

Oklahoma State Gambling Tax Deductions

Wins

You are required to report 100% of gambling winnings as taxable income on your 1040. In addition, all complimentary offerings provided by casinos and gambling establishments must also be included in winnings. Winnings are subject to your federal income tax rate (though rates have been reduced under the TCJA-check out our blog, 2018 Tax Reform Provisions for Individuals for more on this).

Also, if you receive a certain amount of gambling winnings or if you have any winnings that are subject to federal tax withholding, the payer must issue you a Form W-2G “Certain Gambling Winnings”.

In other words, the payer is required to issue you a W-2 G if you receive (according to the IRS).

• $1,200 or more in gambling winnings from bingo or slot machines;
• $1,500 or more in proceeds (the amount of winnings minus the amount of the wager) from keno (a game of chance similar to lotto);
• More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament;
• $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager; or
• Any other gambling winnings subject to federal income tax withholding.

Losses

Gambling losses can be written off as miscellaneous itemized deductions. The gambling loss deduction is limited to the extent of your winnings for the year and excess losses cannot be carried forward to future years.

Under the TCJA, misc. deductions subject to the 2% of adjusted gross income floor are not allowed, however certain deductions (including the gambling loss deduction) are still deductible.

However, since the standard deduction for 2018 was nearly doubled by the TCJA, many taxpayers may no longer benefit from itemizing, seeing as itemizing saves tax only when the total itemized deductions exceed the applicable standard deduction.

How do you claim a deduction for gambling losses?

Recordkeeping is key!

To deduct gambling losses, you must document:

1. The date and type of gambling activity
2. The name and address of the gambling establishment
3. The names of anyone who was present with you at the gambling establishment
4. The amount won or lost

**You can document gambling on table games by recording the number of the table you played and retain statements showing casino credit issued to you. As far as lotteries go, you can use winning statements and unredeemed tickets as documentation.

Key takeaway

The TCJA adds limitations to the gambling loss deduction — you can now only deduct losses up to the amount of your winnings. Any excess loss cannot offset other highly taxed income. Thus, those in the trade or business of gambling, may no longer deduct non-wagering expenses, such as travel expenses or fees, to the extent those expenses exceed gambling gains.

Questions? Contact us.

The TCJA…So Many Changes, So Many Questions…we can help you navigate this huge tax overhaul! Visit our Tax Reform Center for everything you and your business need to know, now.

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From scratch-off lottery tickets to casino slot machines, the opportunities for your clients to lay down a wager are endless. According to the latest statistics, gambling revenue tops $158 billion each year and is expected to rise much higher with the legalization of sports betting.

While winning big may be a long shot, the odds are good that the IRS will expect its share. Here’s a rundown of the current tax law rules for gambling winners … and losers.

Winners

Gambling winnings — whether from a church bingo game or a mega-million lottery ticket — are fully taxable under federal tax law. Gambling income includes cash winnings and the fair market value of prizes, such as cash and tips.

Clearly, some gambling winnings may slip under the IRS’s radar — a $50 prize from a scratch off lottery ticket isn’t likely to be pursued by the IRS or even remembered by your client at tax time. However, more significant winnings are required to be reported to the IRS by the payer.

Under current rules, payers must report the following on Form W-2G, Certain Gambling Winnings:

• $1,200 or more in gambling winnings (not reduced by the wager) from bingo or slot machines.
• $1,500 or more in winnings (reduced by the wager) from Keno.
• More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament.
• $600 or more in gambling winnings (except winnings from bingo, keno, slot machines and poker tournaments) if the payout is at least 300 times the amount of the wager.
• Any other gambling winnings subject to federal income tax withholding.

In addition, gambling winnings from sweepstakes, wagering pools and lotteries are generally subject to regular income tax withholding of 24 percent if the winnings (minus the wager) are more than $5,000. In the case of winners from horse races, dog races, jai alai or certain other wagering transactions, withholding is required if the winnings are more than $5,000 and are at least 300 times the amount wagered. Withholding is not required for winnings from bingo, keno or slot machines, or for winnings of $5,000 or less. However, backup withholding may be required if the winner does not furnish a correct taxpayer identification number.

Losers

Under longstanding rules, casual gamblers can deduct gambling losses — but only to the extent of gambling winnings. What’s more, gambling losses are deductible only if a client itemizes deductions, and only if the client can substantiate the amount of the losses. In a recent case, the U.S. Tax Court denied a deduction for estimated losses claimed by husband and wife poker players because they didn’t provide evidence, such as a personal log of winnings and losses, to back up their claim. The couple explained that they tried to keep a daily record of their poker winnings and losses, but gave up the practice because it was “bad for your psyche” [Pham v. Comm., T.C. Summary Opinion 2016-73].

New law impact: For 2018 through 2025, the Tax Cuts and Jobs Act eliminates miscellaneous itemized deductions that were previously deductible subject to the 2-percent-of-adjusted-gross-income floor. However, that law change does not apply to gambling losses, which have been deductible – and will continue to be deductible – up to the amount of gambling income.

On the other hand, another new law change may impact loss deductions for casual gamblers. The new law significantly raises the standard deduction amounts for all filers, thus eliminating the advantage of itemizing for many taxpayers. In addition, many gamblers will not be able to offset their gambling losses against gambling winnings.

Gambling professionals

Professional gamblers report their winnings and deduct their losses above-the-line on Schedule C, Profit or Loss From Business. Thus, unlike casual gamblers, gambling pros can offset winnings with gambling losses even if they do not itemize deductions. Moreover, in a 2011 decision, the Tax Court held that the limitation of gambling loss deductions to gambling gains did not apply to non-wagering expenses of a gambling trade or business, such as travel expenses and admissions fees to a gambling venue. Consequently, those expenses could result in a net loss from gambling [Mayo v. Comm. 136 T.C. 81].

New law impact: The IRS acquiesced in the Tax Court decision, but Congress was apparently unhappy with the result. Effective for tax years beginning after 2017 and before 2026, tax reform provides that the gambling loss limitation applies not only to gambling wagers, but also to any deduction incurred in carrying on a wagering transaction [IRC §165(d)].

Gambling Tax Deductions United States

Nonetheless, the odds are that gambling pros will still have better luck than casual gamblers when it comes to tax write-offs. Despite the new law changes, losses up to the amount of gambling income remain deductible by professional gamblers, whether they itemize deductions or claim the increased standard deduction.