Gambling

From Wikicpa

Overview on tax treatment of gambling winnings and losses

Winnings

Gross winnings from gambling activities are required to be reported as ordinary income on Form 1040. In most cases this figure will be reported on line 21 of Form 1040 (applicable to 2006 forms).

Lump sum payments are to be report in the year the payment is received. Multi year payments can have the income deferred to the year the payment is received, if within 60 days of becoming eligible for the prize, the taxpayer elects under IRC Section 451(h) to do so. This code section stipulates that the multi year payments must be paid out at a minimum of 10 years.

Losses

Losses from gambling are normally claimed as a miscellaneous itemized deduction on Schedule A, line 21. (applicable to 2006 Forms). The amount you can report for gambling losses is limited to your gross gambling winnings. Any excess losses are not deductible and cannot be carried forward to future years winnings.

Gambling losses reported on Schedule A are not subject to the 2% of Adjusted gross income limitation or the itemized deduction phase out rule for high earners.

Other items of note

• Married individuals can combine their gambling activities. So the taxpayer's winnings can be offset by the spouse's losses.
• All gambling activities are considered a single activity, meaning that winnings from a casino poker table can be offset with losses from a horse track.
• The fair market value of casino "comps" received are counted as winnings and therefore can be offset with applicable losses.