What Is a Gambling Loss?
A gambling loss is a loss resulting from risking money or other stakes on games of chance or wagering events with uncertain outcomes. These losses can only be claimed against gambling income.
- When people place bets on lotteries, raffles, horse races, in casinos, or on events, they risk losing money or whatever stake they had in the game or event. This is the definition of a gambling loss.
- Gambling always involves a negative expected return—the house always has the advantage.
- The IRS considers gambling winnings income, and you must report them on your taxes.
- You can deduct gambling losses from your federal income taxes, but only if you itemize your deductions on Schedule A (Form 1040).
- The losses you deduct can't be more than your reported gambling income.
- Gambling losses can be devastating to an individual and their family and loved ones.
Understanding Gambling Loss
The Internal Revenue Service (IRS) views gambling winnings as income and therefore requires casual gamblers—those who are not in the business of gambling—to pay tax on the winnings. It allows people to deduct gambling losses on their taxes, but only if they itemize their deductions on Schedule A (Form 1040). In addition, the gambling losses can't exceed the amount of someone's reported gambling income.
The IRS requires taxpayers to keep an accurate diary or similar record of winnings and losses as well as provide receipts, tickets, or other records in order to deduct their gambling losses if necessary. The following gambling activities can produce winnings or losses: lotteries, raffles, dog races, horse races, casino games, poker games, and sports events. Taxpayer notes must include the date and type of gambling; the name and address of the gambling venue; the people with whom the taxpayer gambled, if applicable; and the amounts won and lost.
Gambling losses that are deducted cannot exceed the winnings reported as income. So if a gambler has $3,000 in winnings but $7,000 in losses, they can only deduct $3,000. The remaining $4,000 cannot be written off or carried forward to future years. If a gambler has $3,000 in winnings and $1,000 in losses, they must report the $3,000 as income and then claim the $1,000 as an itemized deduction.
Compulsive gamblers often suffer from substance abuse problems, personality disorders, anxiety, or depression.
The Effects of Gambling Loss
Some people suffer from gambling disorder—an uncontrollable urge to keep gambling, even when doing so harms their life, livelihood, and relationships. Similar to drugs and alcohol, gambling stimulates the brain's reward system, which can lead to addiction. If you struggle with compulsive gambling, you may be losing bets, hiding your behavior, accumulating debt, depleting your savings, and even stealing to support your addiction.
Compulsive gamblers can often feel compelled to try to recover their money, which can lead to increased losses. And the reality is that a person can win $10,000 at Casino A one night, lose $9,000 at Casino B the next night, and go home with a W-2 for the $10,000 from Casino A—income on which they must still pay taxes.
Gambling losses can have a deleterious effect on many aspects of someone's life. Crippling gambling loss or debt can lead to financial problems, including bankruptcy; legal problems or imprisonment; job loss; poor health; and suicidal thoughts and suicide attempts.
In 2018, the Supreme Court gave U.S. states permission to legalize sports betting if they wish to do so. As of Sept. 10, 2022, it is still fully illegal in 13 states, including Texas, Arizona, and Utah. In six other states, there is some form of pending legislation or ballot initiative.
Can I Deduct Gambling Losses on My Taxes?
Yes, the IRS allows people who are not in the gambling business to deduct their losses provided that they itemize their deductions on Schedule A (Form 1040). Your gambling losses cannot exceed the amount of the winnings that you are required to report on your taxes.
What Kinds of Records Do I Have to Keep in Order to Deduct Gambling Losses?
You must keep an accurate record of the amounts you have won and lost through gambling and be able to provide receipts, tickets, statements, or other kinds of records that show the amount you have won or lost.
What Are the Signs of a Gambling Disorder?
Compulsive gambling, which is also known as gambling disorder, can manifest as chasing bets that lead to losses and covering up your behavior. It's not uncommon to go into debt and spend all of your savings. It is a condition that can destroy a person's life, but those who struggle with a gambling disorder can find help with professional treatment.
If you or someone you know has a gambling problem, call the National Problem Gambling Helpline at 1-800-522-4700, or visit NCPGambling.org/Chat to chat with a helpline specialist.