Deducting Gambling Losses

Have you ever wondered, can I deduct my gambling losses?

You might be surprised to hear that the answer is yes. But you can only deduct gambling losses up to the amount of your winnings, and you must keep precise records.

You report gambling gains and losses in two separate places on the tax return.

  • Report what you won as income on line 21 of the 1040.
  • Report what you lost as miscellaneous itemized deductions which are NOT subject to the 2% of AGI reduction on Schedule A.

Example

If you spent $300 purchasing lottery tickets and you had $200 in lottery winnings, you would enter $200 on Form 1040, line 21, and then enter only $200 as a miscellaneous itemized deduction on Schedule A—deducting just $200 of the $300 you spent on lottery tickets.

Are you a Professional Gambler?

If you’re a non-professional gambler, you can report gambling losses only as a miscellaneous itemized deduction on Schedule A. But you do not have to reduce gambling losses by 2% of your adjusted gross income, as you must for many other miscellaneous itemized deductions.

If you’re a professional gambler (and we all want to know how a person becomes a professional gambler), the IRS seems to make this determination on a case-by-case basis. You can deduct gambling losses directly from your gambling income instead of deducting them as an itemized deduction on Schedule A.

Keep Records

Professional and nonprofessional gamblers alike need to keep adequate records to document their gambling losses. The records should include a diary of your gambling activities noting

  • The date
  • The location (name of the establishment and address)
  • The names of other people who were there with you
  • The amount you wagered
  • The type of gambling
  • Your winnings
  • Your losses

You must also provide evidence of both what you won and what you lost. You can generally prove your winnings and losses through

  • Form W–2G, Certain Gambling Winnings
  • Form 5754, Statement by Persons Receiving Gambling Winnings
  • Wagering tickets
  • Canceled checks
  • Credit records
  • Bank withdrawals

Statements of actual winnings or payment slips provided by the gambling establishment

Other Deductible Losses

If you want to deduct losses from other gambling activities, you need documentation for those, too:

  • Bingo: Record the number of games, ticket costs.
  • Lottery: Keep records of ticket purchases, payment slips, and unredeemed tickets.
  • Slot machines: Note the date, time, machine played, and machine number.
  • Horse or dog races: Keep records of races and wagers.