How to Deduct Gambling Losses on Your Taxes

Didn't have a good year at the gambling tables? Here's how to know whether you can deduct any of the losses you incurred at the casinos on your income tax return.

Things You'll Need

• IRS forms 1040 and Schedule A

Instructions

1. The first thing you have to understand about deducting gambling losses is that you must be able to itemize deductions to deduct anything. If you cannot itemize your deductions, then none of your gambling losses will be deductible.

2. If you are able to itemize deductions, then the next step is to total all of your gambling winnings and losses. If your winnings total more than your losses, then all of your losses will count toward a deduction. If your losses are greater than your winnings, then only the amount of losses equal to your winnings will count. For example, if you have $4,000 of winnings and $6,000 of losses, then only $4,000 of losses will be potentially deductible. The other $2,000 cannot be used.

3. Finally, you need to complete the first part of your form 1040 to determine your adjusted gross income, because only gambling losses to the extent of gambling winnings that exceed 2 percent of your adjusted gross income are deductible. Deductible losses must meet both criteria.

4. For example, say your gross income is $60,000. You are able to itemize your deductions and you have gambling losses of $3,258 and winnings of $2,947. The 2 percent threshold for you will be $1,200. Because your winnings are less than your losses, only $2,947 of your losses can count toward the threshold. But then you must subtract $1,200 from $2,947 to arrive at $1,747 of deductible losses.

Tips & Warnings

• As you can see, allowable gambling loss deductions do not offer much consolation for losers. Do not count on this deduction as a way to make up for your bad luck at the tables.

Resources

• Internal Revenue Service: Topic 419 - Gambling Income and Losses