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For starters, you can only deduct losses up to the amount of your winnings, so any excess loss can’t offset other highly taxed income. Conversely, you might show a taxable profit. Suppose you have annual gambling winnings of $10,000 for 2017 and losses of $2,500. As a result, you can deduct $2,500, but you’re taxed on the $7,500 difference. Specifically, your tax return should reflect your total year’s gambling winnings – from the big blackjack score to the smaller fantasy football payout. That’s because you’re required to report each stroke of luck as taxable income — big or small, buddy or casino.

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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)

The general rules

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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SubscribeThe tax law allows you to deduct the amount of your gambling losses within certain limits. But these deductions are often contested in the courts.

Salvage gambling loss deduction.

Gambling Losses New Tax Law

If you incur losses from gambling activities during the year, you can deduct those losses up to the amount of your winnings. Although the Tax Cuts and Jobs Act (TCJA) suspends deductions for other miscellaneous expenses from 2018 through 2025, the gambling loss deduction remains intact. Furthermore, miscellaneous expenses are deductible only to the extent that the annual total exceeds 2% of adjusted gross income (AGI). But the 2%-of-AGI floor doesn’t apply to gambling losses.

Keep detailed records.

Although the tax law allows a limited deduction for gambling losses, this write-off isn’t a slam-dunk. Notably, you have to submit documentation to support your claims, including information on the dates and types of wagering activities, the names and addresses of the gambling establishments, the names of anyone who accompanied you at the activities and the amounts won or lost. Typically, you’ll have records of losing tickets, canceled checks and casino credit slips. Also, keep corroborating information (e.g., hotel bills and plane tickets.)

Going for broke.

In rate instances, a long shot for a gambling deduction may pay off. New case: An insurance consultant who was a compulsive gambler won about $350,000 during 2014, the tax year in question. But he didn’t produce documentation at trial and instead relied on the “Cohan rule” for an estimate of losses. The Tax Court judge gave credence to the testimony of a gaming expert who concluded that the taxpayer lost more than that amount. Also, the Court looked to the dire financial situation the taxpayer remained in. Result: The loss was allowed (Coleman, TC Memo 2020-146, 10/22/20).

Gambling Losses New Tax Law 2018

Gambling Losses Under New Tax Law