Gambling losses: You might “miss” this deduction

Gambling is big business.  Take a look a Vegas.  Lights everywhere and someone is paying for that.  Gambling is a reportable activity for a taxpayer, and casinos are required to issue forms to report the activity.  Income is reportable and losses can be claimed.  Well, sometimes they can be claimed.

Gambling income is always reportable, and usually it will be claimed as miscellaneous income.  Professional gamblers actually report their income on schedule C, but we will get to that in another article.  So you’ve perused the internet and Google provided a link to some information on a blog.  It seems to indicate that all of your gambling income can be offset by your losses.  That’s true, but getting there might be a challenge.

A requirement for deducting gambling losses is that you deduct them on Schedule A.  This schedule is for itemizing deductions.  Interest, taxes, medical expenses, and miscellaneous expenses are recorded on Schedule A.  But let’s assume a taxpayer doesn’t own a home and has no medical expenses.  And assume she is married.  Well, if she files jointly with her husband in 2017, they will have a standard deduction of $12,700.  That’s an automatic deduction on the tax return without ever compiling any itemized expenses. 

Let’s go a step further, shall we?  The couple visits Vegas for their honeymoon and gambles.  We’ll pretend that only the husband gambled.  He spent $8,000 and won a paltry sum of $420.  Simple math indicates a loss of $7,580 for the year. Now, the husband wants to deduct it, but because the total amount of potential itemized deductions does not exceed $12,700, the $7,580 will not be reflected on the tax return. 

By now you want to know “what is the good news”?  Well, it’s the standard deduction.  This deduction exists to promote some fairness in the tax system.  Everyone has some tax that might be deducted, some charitable giving, and some miscellaneous expenses.  While some homeowners with plenty of real estate tax and mortgage interest cross that threshold of $12,700 and pick up their full gambling loss, up to the amount of winnings, others may only have those losses and some bit of income tax, an amount much less than $12,700.  The standard deduction levels out the tax playing field, to some extent.

To summarize, gambling losses are deductible, up to winnings.  If you spend $8,000 and only win $420 you can take up to $420 of the losses on schedule A.  Only then will you see an amount for losses appearing on your return.  The rest of the losses are gone forever, so you won’t be able to claim them.  If you don’t itemize, you won’t actually see a deduction for the losses on your return, but worry not; the losses are built into the standard deduction.  So to an extent, you won’t “miss” them after all.