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Gambling Loss Deductions Broadened Under New Tax Law

Mar 7th 2018
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The Tax Cuts and Jobs Act (TCJA) eliminates or scales back certain itemized deductions, including the deduction for miscellaneous expenses subject to the floor of 2 percent of adjusted gross income (AGI).

However, deductions for certain other miscellaneous expenses have been spared. For instance, you can continue to deduct gambling losses, up to the amount of winnings, on 2017 returns and beyond.

The TCJA did, however, modify the gambling loss deduction, beginning in 2018. For this purpose, the definition of gambling losses has been broadened to include other expenses incurred in gambling activities, such as travel back and forth from a casino or track.

Let’s recap the basic rules. 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. If you incurred $5,000 in losses and have zero winnings, you get no deduction at all. The best you can hope to do tax-wise on your 2017 return is to break even.

Further, you must provide concrete proof to the IRS if your deduction is ever challenged. According to the IRS, taxpayers must compile the following in a log or other record:

  • The date and type of each wager or wagering activity.
  • The name and location of the gambling establishment.
  • The names of any other person accompanying you to the gambling establishment.
  • The amount you won or lost.

Note that you can document winnings and losses from table games at casinos by recording the number of the table and keeping statements showing casino credits.

Theoretically, you’re supposed to record each gambling win or loss for each blackjack hand, spin at the roulette table and throw of the dice, as well every horse or dog race. But, practically speaking, this is rarely done. The IRS acknowledged this reality several years ago for slot machine play and now allows casual slot machine players to keep records of winnings and losses for a gambling “session.”

Suffice it to say that the IRS will probably accept a log or other record that details the activities for a day at a particular venue. But be forewarned: The agency is wise to taxpayers who have appeared to collect random tickets stubs of losers at the track. It’s not likely that you would have placed one hundred $2 wagers on the same horse in he same race.

Finally, if your gambling activities rise to the point where it’s a business (i.e., you’re a professional gambler), you can deduct an annual loss. However, under the TCJA, taxpayers can no longer include non-wagering expenses, such as travel, in any loss that is deductible. This change takes effect in 2018.    

This article is the last of a series titled Vintage 2017 Tax Deductions, which focuses on the key deductions your clients may be able to claim under the new tax law.

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By [email protected]
Apr 19th 2019 16:03

I can find no other reference to support the statement that "The TCJA did, however, modify the gambling loss deduction, beginning in 2018. For this purpose, the definition of gambling losses has been broadened to include other expenses incurred in gambling activities, such as travel back and forth from a casino or track."

Do you have a reference for that? Thanks.

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