Can You Put Casino Losses On Your Taxes? – Avoid This Mistake + FAQs

Yes, you can deduct casino losses on your taxes if you itemize deductions and only up to the amount of your reported gambling winnings.

U.S. gamblers collectively lose over $100 billion each year, yet many don’t realize they can offset some of those losses at tax time.

What you’ll learn:

• 🏦 Federal Rules for Deducting Gambling Losses: How the IRS lets you write off casino losses (and the key conditions you must meet).

• 🎲 Casual vs. Professional Gamblers: Why tax law treats hobby gamblers and full-time professional gamblers differently (and what that means for your deductions).

• 🌆 State-by-State Variations: How states like Nevada and New Jersey differ on taxing gambling income and allowing loss deductions.

• ⚠️ Common Tax Filing Mistakes: Avoidable errors people make when claiming gambling losses – from poor recordkeeping to misunderstanding IRS rules.

• 📚 Examples, Key Terms & FAQs: Real-life scenarios, important terms (like Section 165(d), Schedule A, and Form W-2G), plus quick answers to frequently asked questions.

Understanding Gambling Loss Deductions under Federal Law

Under U.S. federal tax law, gambling losses are deductible – but only under strict conditions.

The government doesn’t let you simply subtract a big losing night at the casino from your salary or other income. Instead, losses from gambling can only be used to offset gambling winnings and nothing more.

The Golden Rule: Losses Can’t Exceed Winnings (IRC Section 165(d))

The single most important rule is that you can only deduct gambling losses up to the amount of your gambling winnings for the year. This limitation comes from Section 165(d) of the Internal Revenue Code, which explicitly restricts deductions for wagering losses to the amount of reported wins.

In simple terms, you cannot use gambling losses to create a tax loss or reduce other income. If you lost more money gambling than you won, the excess losses are not tax-deductible.

For example, if you won $5,000 at a casino but had $8,000 in total losses, you can deduct only $5,000 of those losses. That would effectively cancel out your $5,000 of gambling income for tax purposes, leaving you with no taxable gambling income – but the remaining $3,000 in losses is lost for tax purposes.

You can’t carry it over to future years or deduct it against non-gambling income. This rule applies to all taxpayers, whether you’re an occasional slot player or a high-rolling poker pro.

You Must Itemize Deductions on Schedule A

Another crucial condition is that gambling losses are deductible only if you itemize your tax deductions. Itemizing means listing individual deductible expenses (like charity donations, mortgage interest, and gambling losses) on Schedule A of your Form 1040, instead of taking the flat standard deduction.

The IRS requires that you forego the standard deduction in order to claim any gambling loss write-off.

In practice, this means if you normally take the standard deduction (which many Americans do, especially after recent tax law changes that raised the standard deduction amount), you generally cannot deduct your casino losses. You would need to have enough total itemizable expenses, including your gambling losses and other deductions, to make itemizing worthwhile.

If your total itemized deductions don’t exceed your standard deduction, you’d pay less tax by just taking the standard amount – and in that case your gambling losses unfortunately won’t provide any tax benefit.

Key point: Gambling losses go on Schedule A as an “Other Itemized Deduction.” They are not subject to the 2% income threshold that some miscellaneous deductions faced (prior to 2018), but they still require you to itemize.

If you’re married filing jointly, for example, the standard deduction is quite high (over $25,000 as of the mid-2020s). You’d need a combination of gambling losses and other deductions above that to actually see a tax advantage from claiming those losses.

Reporting Winnings First (and Why It Matters)

To deduct losses, you have to report all gambling winnings as income. The IRS is strict on this: you can’t claim losses if you don’t also report the corresponding wins. Every dollar you win gambling in a year is taxable income and should be reported on your Form 1040 (usually on the “Other Income” line).

Casinos and other payers are required to issue Form W-2G for certain sizable wins (for example, a slot machine jackpot over $1,200 or a poker tournament win over $5,000). Form W-2G reports the amount you won and any tax they withheld on the spot.

Even if you don’t receive a W-2G (for smaller wins or informal bets), you are legally required to report all your gambling winnings, whether it’s cash, prizes, or the fair market value of non-cash prizes.

Why is reporting winnings so important? Two reasons:

1. Losses only count if wins are reported: The IRS will only allow your loss deduction up to the amount of gambling income you put on your return. If you try to deduct losses but omit some of your casino winnings, you’re effectively trying to get a deduction for losses exceeding winnings, which breaks the rule. This is a red flag for audits. For instance, you can’t claim $10,000 of losses if you only report $2,000 of wins for the year – that would be deducting more than you won.

2. Gross income vs. deduction: The tax code wants you to report the gross gambling income and then separately deduct losses. You cannot simply report a net amount (for example, reporting “$0” because your $10k winnings and $10k losses netted out). Instead, report the $10k as income and $10k as a deduction. This way, the IRS sees both numbers. It might feel the same to you, but on a tax return it’s very different and required for transparency.

Where to Claim Gambling Losses on Your Tax Return

On your federal tax return, you will list all your gambling winnings as part of your total income on Form 1040. Then, if you itemize, you claim your gambling losses on Schedule A: Itemized Deductions.

There is a specific line on Schedule A for “Other Itemized Deductions – Gambling Losses.” You can enter any amount of gambling losses up to (but not exceeding) the amount of gambling income you reported.

For example, suppose in 2024 you had $5,000 in lottery and casino winnings (which you report as income) and $7,000 in documented gambling losses. On Schedule A, you would list $5,000 as your gambling loss deduction (since that’s the max you can use). This will wipe out the tax on your $5,000 of winnings.

The extra $2,000 of losses is not deductible and simply doesn’t appear on the return at all. If your itemized deductions (including that $5,000) exceed your standard deduction, you’d use them; otherwise, if they don’t, you might not benefit from those losses at all in terms of tax owed.

It’s important to note that gambling losses are a tax deduction, not a credit. Deductions reduce your taxable income, which indirectly reduces your tax by your marginal rate.

In contrast, a credit would reduce your tax bill dollar-for-dollar. Gambling losses are only deductions, and only valuable if you have gambling income to offset and if you itemize.

Casual vs. Professional Gamblers: Different Tax Rules

Not all gamblers are treated the same under the tax code. The IRS distinguishes between casual gamblers (people who gamble for fun or as a hobby) and professional gamblers (those who gamble with continuity and intent to make a living).

While the core rule – losses can only offset winnings – applies to everyone, there are some differences in how income and deductions are reported for casual versus professional gamblers. It’s important to know which category you fall into, because it affects where and how you deduct your losses and potentially other expenses.

Casual Gambler (Hobbyist)

Most people who visit casinos or buy lottery tickets are casual gamblers. If gambling isn’t your primary occupation or a serious income-producing endeavor, the IRS considers you a hobby or recreational gambler. Casual gamblers report their gambling winnings as other income on Form 1040 (line for “Other Income”) and deduct losses on Schedule A as an itemized deduction (as discussed above).

For a casual gambler:

• Losses can only be used to offset gambling winnings (never to produce a net loss or reduce other income).

• Losses are claimed on Schedule A and thus require itemizing deductions.

• You cannot deduct any other gambling-related costs like travel to a casino or meals, because those aren’t explicitly allowed for hobby gambling. Only the wagering losses themselves are deductible, and only up to winnings.

• Your gambling activity isn’t considered a business, so you don’t get to file a Schedule C for it or deduct expenses the way businesses do.

In short, the casual gambler’s tax approach is straightforward: report all your wins, deduct your losses up to that amount on Schedule A. If you have no winnings, you get no deduction for your losses. And if you don’t itemize, your losses don’t help you at all at tax time.

Professional Gambler (Gambling as a Business)

A professional gambler is someone for whom gambling is not just a casual pastime but a for-profit activity carried on with regularity, like a business or job. This could be, for example, a full-time poker player or sports bettor who earns their livelihood through gambling. The IRS uses similar criteria as it does for other self-employed individuals: a profit motive, substantial regular involvement, and continuity are key factors to be considered “in the trade or business” of gambling.

If you qualify as a professional gambler:

• You report your gambling income and losses on Schedule C (Profit or Loss from Business) as self-employment income, rather than just listing winnings as “other income.” Your gambling profit (or loss) is treated like business income.

• You can deduct not only your gambling losses (up to winnings) but also other ordinary and necessary business expenses related to your gambling activity. For instance, a professional poker player might deduct travel expenses to tournaments, hotel bills, tournament entry fees, the cost of online poker software or subscriptions, and so on.

• You do not have to itemize on Schedule A to deduct gambling losses. Instead, your allowable losses and expenses can be written off on Schedule C against your gambling winnings. This means even if you’d otherwise take the standard deduction, you won’t miss out on your gambling loss deduction if you’re truly a professional filing Schedule C.

However, even for professionals, the golden rule still applies: you cannot deduct losses in excess of your winnings.

A professional gambler can end up with a net profit of zero for the year (if losses equal winnings, plus they can deduct other expenses until the total deductions equal winnings), but generally they cannot report a net loss from gambling activities. Prior to 2018, some professional gamblers could deduct certain business expenses beyond their losses, potentially leading to a business loss (which might offset other income).

But today, U.S. tax law (after changes in 2018) closes that loophole by broadening the definition of “losses from wagering transactions” to include those related expenses. In practical terms, it means a professional gambler’s total deductions related to gambling – including both the wagers lost and any business expenses like travel – are limited to the amount of gambling winnings.

To illustrate, imagine you are a professional blackjack player. In a year, you win $100,000 but lose $120,000, for a net gambling loss of $20,000. Additionally, you had $5,000 of travel and hotel expenses traveling to casinos. On Schedule C, you would report $100,000 of income.

You could deduct $100,000 of your losses (the maximum equal to your winnings) and also deduct $5,000 of travel but that travel deduction would effectively be limited by the same cap – you still can’t deduct more than $100,000 total. So you would end up showing $0 profit on Schedule C for gambling, and you’d have $25,000 of expenses (the extra $20k of losses beyond winnings and $5k of travel) that you simply cannot deduct.

You’re stuck with a break-even for tax purposes, even though in reality you lost money. The tax law doesn’t let your gambling business show a loss that could offset, say, your spouse’s income or other earnings. This might seem harsh, but it’s the law’s way to prevent using gambling as a tax shelter for other income.

Tip: The distinction between casual and professional gambler is not something you can choose freely – it depends on the facts. The IRS may look at factors like whether you gamble full-time, maintain detailed records, pursue gambling for profit consistently rather than entertainment, and even whether you have alternative sources of income.

If gambling isn’t clearly your primary, profit-driven endeavor, the IRS will treat you as a hobbyist. Meanwhile, genuine professionals should take care to file correctly to maximize their deductions (on Schedule C) without overstepping the rules.

Below is a quick comparison of how casual versus professional gamblers differ in tax treatment:

What About Casino Operators and Gambling Businesses?

So far we’ve focused on individuals who gamble, but it’s worth noting the perspective of casino operators and similar gambling businesses. A casino or sportsbook is essentially the “house” in gambling transactions. When a patron wins a jackpot at a casino, that payout is a business expense for the casino, and the patron’s loss is the casino’s revenue. Casinos don’t face the same limitation on losses that individual gamblers do because their “gambling losses” (payouts to winners) are just the cost of doing business.

For example, if a casino pays out $1 million in jackpots in a night but takes in $1.2 million in bets, the casino has $200,000 net revenue (which will be taxed as business income). The $1 million they paid to winners is fully deductible as a business expense (prize payout).

Even if a casino has a rare losing month (paying out more than it takes in), it can generally deduct those losses against other revenue or carry them as a net operating loss, just like any other business that had a bad quarter. The IRS rules about gambling losses up to winnings are aimed at individual taxpayers, not at the businesses that facilitate gambling.

However, casinos have their own strict rules: they must withhold taxes on certain big winnings and issue Form W-2G to winners, and they keep detailed records of payouts. Casino companies also pay gaming-specific taxes and fees at the state level.

But the key takeaway is that the tax law’s intent is to tax gamblers on their net winnings and to tax gambling businesses on their net profits. In both cases, nobody gets to deduct losses beyond the income from gambling – it’s just that for a casino, any payout is a direct offset to their betting income, which makes sense in the business context.

State Tax Laws on Gambling: Why Location Matters

Federal tax rules on gambling losses apply to everyone in the U.S., but state income tax laws can vary widely. Some states follow the federal approach and allow gambling losses as a deduction (with the same “up to winnings” limit), while other states either limit this deduction or don’t allow it at all. Additionally, a few states don’t have an income tax to begin with, which means they don’t tax gambling winnings or allow loss deductions at the state level.

Understanding your state’s stance is important because even if you deduct losses on your federal return, your state might treat your gambling income differently. Here’s a breakdown of common state scenarios:

• No state income tax: States like Nevada, Florida, Texas, and a handful of others (e.g. Washington, Wyoming, South Dakota, Alaska) impose no personal income tax at all. If you’re a resident of one of these states, you won’t owe state tax on gambling winnings, and there’s no need to worry about deducting losses on a state return. Nevada, home to Las Vegas, has no state income tax, which is one reason it’s a gambler’s paradise – all your casino winnings are only taxed once (by the IRS).

• States that allow loss deductions: Many states with income taxes allow you to deduct gambling losses to the extent of your winnings, generally if you itemize on your state return. These states essentially mirror the federal rule. For example, New Jersey – a state known for Atlantic City casinos – taxes gambling winnings as income but allows residents to deduct their gambling losses up to their winnings (you may be required to provide documentation of losses if you do so). New York similarly permits gambling loss deductions for state tax if you itemize deductions. In these states, if you wiped out your winnings with losses at the federal level, you can usually do the same on the state return, resulting in no state tax on that gambling income.

• States that do NOT allow loss deductions: A few states take a tougher stance and tax gross gambling winnings without any offset for losses. For instance, North Carolina currently does not allow any deduction for gambling losses on the state return – meaning if you’re an NC resident who wins $5,000 and loses $5,000, you’ll pay North Carolina tax on the $5,000 of winnings even though you broke even overall. Connecticut is another example where state law disallows gambling loss deductions. In those places, your federal taxes might be zero on net gambling income (if losses matched wins), but you could still owe state tax on the full winnings amount, which feels like a rough deal.

• States with partial or special rules: Some states have unique quirks. Massachusetts, for example, historically disallowed gambling loss deductions, but when the state legalized casinos, it began permitting loss deductions but only against winnings from Massachusetts casinos. So a Massachusetts resident could deduct losses from playing at in-state casinos like MGM Springfield or Encore Boston Harbor (up to the amount of those casinos’ winnings), but losses from a trip to Las Vegas or an out-of-state lottery might not be deductible on the MA return. Always check your own state’s current tax guidelines, because these rules can change with new legislation.

Note: If you are a resident of a state that allows gambling loss deductions, you typically need to itemize on your state return and have documentation just as you would federally.

Conversely, if your state doesn’t allow the deduction, you might end up paying state tax on money that you didn’t truly keep (because you lost it).

Lawmakers in such states have debated fairness – for example, North Carolina’s policy of taxing gross gambling winnings has been criticized since it taxes more than a person’s net gain. Always consult your state’s tax instructions or a tax professional to see how gambling income and losses are handled.

Also, keep in mind if you gamble in a state other than your state of residence, you might have to file a non-resident tax return for that state. Many states require non-residents to pay tax on income (including gambling winnings) earned within their borders.

They often withhold state tax from big payouts on the spot. If you do pay tax to another state on gambling winnings, your home state might give you a credit to avoid double taxation. However, the rules for deducting losses might still only apply on your resident return. This can get complex, but it’s worth being aware if you hit a jackpot while on vacation in another state.

Documentation and Recordkeeping: Proving Your Gambling Losses

Being able to deduct your casino losses is one thing – being able to prove your losses is another. The IRS doesn’t just take your word for it if you claim a large amount of gambling losses. In the event of an audit (or even when filing, if numbers seem high relative to income), you should have proper documentation to support the losses you deduct. Good recordkeeping is essential to substantiate your claims.

Here are some tips on documenting gambling wins and losses:

• Keep a gambling diary or log: Maintain a contemporaneous log of your gambling activities. Include the date, location (which casino or platform), the type of game or bet (slots, poker, sports bet, etc.), amounts won or lost, and cumulative bankroll changes for each session. This diary will serve as a primary record. For example, note “Jan 15, 2025: Played blackjack at Caesars Palace, 3 hours, bought in $1,000, cashed out $1,500 – net win $500” or “Feb 2, 2025: Online poker, lost $200”.

• Save receipts, tickets, and statements: Keep any receipts, wagering tickets, or payout slips from casinos. If you hit a jackpot and get a Form W-2G, save a copy. Many casinos can provide win/loss statements summarizing your gambling activity for the year if you use a player’s card – these can be helpful supporting documents (though the IRS prefers you have your own log too). If you buy lottery tickets, keep a record of how much you spent (losing tickets can substantiate losses – yes, saving losing lottery tickets is advisable if you plan to deduct a substantial amount).

• Bank and credit card records: If you withdraw cash at a casino ATM or buy chips with a debit or credit card and later pay it off, those bank statements can help corroborate that you spent money gambling. Similarly, if you deposit a big check from a casino, that deposit record aligns with a reported win.

• Online gambling records: If you gamble through online casinos or sportsbooks, download your account statements regularly. They usually track all bets, wins, and losses. These digital records are crucial since online platforms may not send you any tax forms unless you have big wins, yet all those small transactions count.

• Form W-2G and 1099 forms: Any official tax forms for winnings (W-2G for gambling or maybe a 1099-MISC/NEC in rare cases for prizes) are obviously important. They tell the IRS that you had gambling income, so make sure you include those winnings and use losses to offset them if you have documentation.

By keeping thorough records of both wins and losses, you’re prepared to defend your deductions. The IRS Topic 419 (which covers gambling income and losses) advises that you keep an accurate diary and receipts. If you ever face an audit, the agent will ask for evidence of the losses you claimed. If you don’t have proof, those deductions could be disallowed, meaning you’d owe back taxes (and possibly penalties) on the unsubstantiated amount.

Remember: When it comes to proving losses, it’s not just about big events. Even routine losing bets add up. For instance, losing $50 a week on lottery tickets over a year is $2,600 of losses. If you also had a one-time casino win of $2,000 (for which you got a W-2G), you might deduct $2,000 of those lottery losses to offset – but you’d better have some record of buying those tickets (like a log or receipts), or the IRS could challenge that deduction.

One strategy many savvy gamblers use is to keep separate envelopes or folders for each gambling outing, storing any related slips or notes from that session, then later transfer the info into a spreadsheet or journal. The key is consistency and completeness. Without proper documentation, your gambling loss deduction is on shaky ground. With documentation, you can confidently claim what you’re entitled to under law.

Common Mistakes to Avoid When Claiming Gambling Losses

Even when the rules are understood, people often make mistakes in how they claim gambling losses on their taxes. Here are some common mistakes and misconceptions to avoid:

• Not itemizing when required: A frequent mistake is assuming you can deduct gambling losses while still taking the standard deduction. If you don’t itemize, you cannot claim any gambling loss deduction (unless you’re a professional gambler using Schedule C). Many taxpayers forget this and either miss out on deductions or, worse, try to claim losses incorrectly. Always remember that for casual gamblers, itemizing on Schedule A is a must to benefit from losses.

• Deducting more losses than winnings: It might be tempting to try to deduct all your losses especially if you had a rough year at the casino, but it’s not allowed. For example, if you lost $10,000 and won $4,000, you might feel those losses should count against your other income – but the tax law is explicit that they can’t. Deduct only up to the amount you won. Any “extra” losses are personal and can’t reduce your other income like wages or investments.

• Failing to report all winnings: Some people think if they had losses that exceed winnings, they can just not report some winnings since “it all washes out anyway.” This is wrong and risky. The IRS expects full reporting of gross income. If you received a W-2G or any record of a win, the IRS likely knows about it. Underreporting gambling winnings, even if you have offsetting losses, can lead to trouble. Report every win, then deduct the losses. Don’t net them out on your own.

• Poor recordkeeping or no proof: As mentioned in the documentation section, claiming losses without keeping evidence is a major mistake. You might get away with it when filing, but if audited, unsupported deductions will crumble. Don’t guesstimate or fabricate numbers; always keep a paper trail. For example, claiming a perfectly round amount (like “$5,000”) with no records is a red flag, since actual losses are rarely such neat figures.

• Misunderstanding “professional” status: Another mistake is trying to claim professional gambler status (to deduct losses or expenses without itemizing) when gambling isn’t truly your full-time business. The IRS is vigilant about people inflating hobby activities into supposed businesses, so if you don’t gamble regularly with a profit motive, don’t file as a professional gambler. On the flip side, genuine professional gamblers sometimes mistakenly continue to report on Schedule A, not realizing they could use Schedule C and deduct more (subject to limits) – it’s crucial to file correctly for your situation.

• Assuming all states follow federal rules: As we saw, state taxes can differ. A mistake is copying your federal deductions onto your state return without checking state law. You might claim a loss deduction on the federal and then do the same on the state, not realizing your state disallows it – which could lead to a state tax notice later. Always adjust for any differences in state treatment.

• Thinking gambling losses are like other losses: It’s a mistake to equate gambling losses with, say, stock market or business losses and assume they can be carried over or deducted similarly. This is incorrect: you cannot carry forward unused gambling losses to future years, nor deduct them against other income beyond gambling winnings. In short, don’t mix up gambling loss rules with other loss rules.

By sidestepping these pitfalls, you can ensure your gambling loss deductions are accurate, legal, and less likely to invite IRS problems. In short: itemize if required, claim only what you’re entitled to, keep good records, and don’t try to game the system beyond what the law permits.

How to Claim Gambling Losses on Your Tax Return (Step-by-Step)

If you’ve determined you qualify to deduct your casino or gambling losses, here is a simple step-by-step guide to claim them properly on your tax return:

1. Report all your gambling winnings – Add up all forms of gambling income for the year: casino jackpots, lottery prizes, racetrack winnings, sports betting profits, poker tournament prizes, etc. Include the full amount of your winnings on your Form 1040. Typically, you’ll report this on the line for “Other Income” (or on Schedule 1 of Form 1040). For example, if you had two big casino hits of $3,000 each and lots of smaller wins totaling $1,000, you’d report $7,000 as gambling income.

2. Gather your documentation for losses – Before you fill in your deductions, make sure you have the records of your losses. Tally up your losing tickets, receipts, your gambling log, and any win/loss statements. Let’s say you calculate that you lost $9,000 over the year through various gambling sessions.

3. Decide to itemize deductions – Determine if itemizing is beneficial for you. Add up all your potential itemized deductions: gambling losses (limited by winnings) plus other deductions like mortgage interest, state taxes, charitable contributions, etc. Compare the sum to your standard deduction. If the total itemized amount is larger, you’ll opt to itemize. If not, and you’re a casual gambler, you won’t be able to deduct your losses (unless you choose to itemize despite a lower total, which is uncommon). Continuing our example, assume your $7,000 of gambling income came along with $9,000 of losses. You also have $10,000 of other itemizable expenses (like mortgage interest). That would give you $15,000 total potential deductions, which might be below or above your standard deduction depending on your filing status. If above, you’d itemize.

4. Fill out Schedule A – On Schedule A (Itemized Deductions), there is a section typically toward the bottom for “Other Itemized Deductions.” This is where gambling losses are entered. You would input your total gambling losses up to the amount of winnings. In our example, even though you lost $9,000, you only have $7,000 in winnings. You would claim $7,000 as the deduction (not the full 9). If instead you had $12,000 of losses and $9,000 of wins, you’d claim $9,000. Essentially, you put the lesser of your total losses or total winnings. The form doesn’t require you to list each loss, just the total amount you’re claiming.

5. Complete the rest of your tax return – Carry on with filling out your Form 1040. The gambling income you reported increases your adjusted gross income, and the gambling loss deduction on Schedule A will reduce your taxable income if you’re itemizing. Attach Schedule A (and Schedule 1 if your winnings are listed there) to your Form 1040 when filing. If you have any Form W-2G from casinos or lotteries, you’ll include those with your tax return as well (or if e-filing, you’ll input the details so the IRS can match them).

6. Retain your records – After filing, keep all your supporting documentation (logs, receipts, W-2Gs, etc.) together with a copy of your tax return. Hold onto these for at least a few years in case of an audit or if the IRS questions your deductions. If you used a tax preparer, make sure they gave you back all your original documents.

Following these steps ensures that you handle your gambling losses in the correct manner on your return. Essentially: report your wins, claim your losses in the right spot, and make sure you qualify by itemizing. If you’re a professional gambler, the steps differ slightly (you’d use Schedule C to report net profit or loss from gambling business, and you don’t need to itemize on Schedule A for those losses). In that case, you’d list your gross winnings as revenue on Schedule C and your losses and expenses as business deductions (again capped by winnings).

Let’s cement these ideas with some concrete scenarios.

Example Scenarios of Gambling Wins and Losses

To better understand how gambling losses and taxes interact, here are several common scenarios and how they play out on a tax return:

These examples highlight a few key takeaways: If you have no winnings, you get no deduction. If your losses exceed winnings, you can only deduct up to the winnings amount. Casual gamblers must itemize to benefit. Professional gamblers use Schedule C but still can’t create a net loss from gambling activities.

Pros and Cons of Deducting Gambling Losses

Is it worthwhile to keep track of your losses and claim them? Generally yes, if you have gambling income it’s wise to offset it, but consider the upsides and downsides:

In most cases, the pros of deducting losses outweigh the cons if you have significant gambling winnings – it’s usually beneficial to not pay tax on income you actually lost gambling. However, if you only have losses (no wins), the deduction’s limitation is a clear downside since those losses don’t help you at all. And if your losses are small or you don’t have good records, the hassle might not be worthwhile. Weigh the effort of itemizing and recordkeeping against the tax savings you expect.

Court Rulings and Legal Perspectives

The taxation of gambling has occasionally been challenged or clarified in courts, resulting in important rulings:

• Commissioner v. Groetzinger (1987): This U.S. Supreme Court case defined what it takes to be a professional gambler for tax purposes. The Court held that a taxpayer who made a living betting on greyhound races (devoting full-time effort to it) was engaged in a trade or business of gambling. This meant he could deduct business expenses on Schedule C; however, the Court confirmed that the loss limitation in Section 165(d) still applied – even as a business, gambling losses couldn’t exceed gambling wins. In short, Groetzinger established that regular, continuous gambling with a profit motive can be a bona fide business activity, but it didn’t permit writing off net gambling losses beyond winnings.

• Tax Cuts and Jobs Act (2017) changes: Although not a court ruling, it’s worth noting a legislative change that affects gamblers. From 2018 through at least 2025, Congress clarified that the term “losses from wagering transactions” in Section 165(d) includes not just losing bets, but also any expenses incurred in gambling. This reinforced that professional gamblers cannot deduct travel, meals, or other costs beyond what their winnings can cover. Prior to this, some court cases had allowed professional gamblers to deduct non-wagering expenses even if it produced a net loss. The law change effectively nullified those cases for the duration of the provision, making the tax treatment more uniform.

• State court debates: There have been debates and bills at the state level (like North Carolina’s legislature discussing whether to allow loss deductions in line with federal law, as some argued that taxing gross winnings violates the idea of taxing only “net” income). While not court cases in the traditional sense, these discussions highlight that the issue of fairness in gambling taxation is recognized. If you live in a state that disallows loss deductions, keep an eye on any law changes or legal challenges that might alter that.

The bottom line from a legal standpoint is that the IRS’s authority to limit gambling loss deductions is well-established and generally upheld. Courts have supported the distinction between hobby and business gamblers, and they’ve consistently enforced the principle that one cannot write off gambling losses beyond gambling gains. So any tax strategy that tries to circumvent those rules is likely to fail. It’s best to play by the book: report everything, deduct within the allowed limits, and keep records to back it up.

Frequently Asked Questions (FAQ) about Gambling Losses and Taxes

Q: Can I deduct gambling losses if I have no gambling winnings for the year?
No. If you don’t have any gambling winnings, you cannot claim any gambling losses as a deduction. The losses only offset gambling income, and they can’t reduce other income or carry over.

Q: Do I have to itemize my taxes to write off gambling losses?
Yes. For casual gamblers, you must itemize deductions (using Schedule A) to claim gambling losses. If you take the standard deduction, you can’t deduct any gambling losses on your federal return.

Q: Can I deduct more gambling losses than I won?
No. You’re only allowed to deduct losses up to the amount of your reported gambling winnings. Any losses beyond what you won are not deductible and won’t provide any tax benefit.

Q: Do professional gamblers have different tax rules for losses?
Yes. Professional gamblers report gambling income and losses on Schedule C as a business. They can deduct expenses like travel and meals related to gambling, but they still cannot deduct losses beyond their winnings.

Q: Are gambling losses deductible on state taxes everywhere?
No. Many states follow federal rules (losses up to winnings if you itemize), but some (like North Carolina and Connecticut) disallow any gambling loss deduction on the state tax return.

Q: Can I carry over unused gambling losses to next year?
No. Unlike some other types of losses, gambling losses cannot be carried forward. If you couldn’t deduct them (because they exceeded your winnings), they expire in that tax year and can’t be used later.

Q: Will claiming large gambling losses increase my chances of an audit?
Yes. Large gambling loss deductions can raise a red flag if they’re big relative to your income. However, with solid records and following the rules, you should be able to defend your claim.

Q: What records do I need to keep to deduct gambling losses?
Yes. Keep a detailed log of your gambling activity and save supporting documents (tickets, receipts, casino statements). In an audit, you must show proof of both your winnings and your losses.