Claiming Gambling Losses On Tax Return
- Gambling Losses You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040 or 1040-SR) PDF and kept a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return.
- For example, if you won $3,000 from gambling for 2016, the most you can deduct on your 2016 tax return is $3,000, no matter how much you lost. Losses must be reported on Schedule A as an Itemized Deduction, which are separate from winnings. Continue reading for important facts about claiming your gambling losses on your tax return.
Gambling Losses To claim your gambling losses, you have to itemize your deductions. Gambling losses are a miscellaneous deduction, but - unlike some other miscellaneous deductions - you can. The IRS allows you to claim your gambling losses as a deduction, so long as you don’t claim more than you won. Here’s what that looks like: Let’s say you win $2,000 and lose $200. You’d report $2,000 of the winnings as income and then deduct $200 on Schedule A (the form for itemized deductions).
Gambling losses are indeed tax deductible, but only to the extent of your winnings and requires you to report all the money you win as taxable income on your return. The deduction is only available if you itemize your deductions. If you claim the standard deduction, then you can't reduce your tax by your gambling losses.
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Keeping track of your winnings and losses
The IRS requires you to keep a log of your winnings and losses as a prerequisite to deducting losses from your winnings. This includes:
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- lotteries
- raffles
- horse and dog races
- casino games
- poker games
- and sports betting
Your records must include:
- the date and type of gambling you engage in
- the name and address of the places where you gamble
- the people you gambled with
- and the amount you win and lose
Other documentation to prove your losses can include:
- Form 5754
- wagering tickets
- canceled checks or credit records
- and receipts from the gambling facility
Claiming Gambling Losses On Tax Return Filing
Limitations on loss deductions
The amount of gambling losses you can deduct can never exceed the winnings you report as income. For example, if you have $5,000 in winnings but $8,000 in losses, your deduction is limited to $5,000. You could not write off the remaining $3,000, or carry it forward to future years.
Reporting gambling losses
To report your gambling losses, you must itemize your income tax deductions on Schedule A. You would typically itemize deductions if your gambling losses plus all other itemized expenses are greater than the standard deduction for your filing status. If you claim the standard deduction,
- You are still obligated to report and pay tax on all winnings you earn during the year.
- You will not be able to deduct any of your losses.
Only gambling losses
The IRS does not permit you to simply subtract your losses from your winnings and report your net profit or loss. And if you have a particularly unlucky year, you cannot just deduct your losses without reporting any winnings. If the IRS allowed this, then it's essentially subsidizing taxpayer gambling.
The bottom line is that losing money at a casino or the racetrack does not by itself reduce your tax bill. You need to first owe tax on winnings before a loss deduction is available. Therefore, at best, deducting your losses allows you to avoid paying tax on your winnings, but nothing more.