Gambling Winnings and Losses

Gambling winnings are included in full in gross income and reported on your tax return as “other income.” This includes winnings from both legal and illegal gambling activities. Gambling income includes winnings from lotteries, raffles, horse races, poker tournaments, slots, and even office pools on the Super Bowl or March Madness. It includes winnings in person and online.

In addition to cash winnings, gross income includes the fair market value of prizes such as cars and trips. These include prizes won on shows like The Price Is Right.

Note: Investments in the stock market, no matter how risky, are not treated as a gambling activity.

Gambling winnings may be subject to withholding. If your winnings are sizable, withholding may not cover your full tax obligations, and you may also have to make quarterly estimated tax payments on gambling winnings to avoid underpayment penalties.

Gambling losses. Gambling losses are deductible, but only in a limited way. Losses can be deducted to the extent of gambling winnings for the year. The wins and losses do not have to result from the same activity. For example, if you win $500 at bingo during the year, you can deduct your losing lottery tickets up to $500.

Keep a diary or similar record of your gambling winnings and losses, noting the date and amount of your wagers and their results. To deduct losses, you must be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses.

Losses are deductible only as a miscellaneous itemized deduction, so you have to itemize to take any losses. These losses are not reduced by 2% of adjusted gross income. Losses in excess of winnings are not deductible and cannot be carried forward and used in a future year.