Offsetting Lottery Winnings With Casino Losses for Tax Purposes

Casino losses can offset lottery winnings.

Casino losses can offset lottery winnings.

The Internal Revenue Service treats gambling winnings as taxable income. This means that if you hit it big in the lottery, the tax man wins too. However, if you go to Vegas or Atlantic City and blow some of your winnings, those losses could end up reducing your tax bill.

Gambling, According to the IRS

The IRS defines gambling relatively broadly. Playing the lottery, betting on horses and participating in raffles all meet its definition. Any money you win or lose in a casino is also considered a gambling loss. You can mix different types of gambling income and losses all together, so you don't have to separate your casino gambling from your lottery play.

Deducting Losses

The IRS will let you deduct all of your gambling losses up to the amount that you report as winnings. If you win $150,000 in the lottery and you have $50,000 in losses from bad lottery tickets and a few very unlucky hands of blackjack, you can write off all $50,000 in losses, offsetting an equal amount of your winnings. However, if you win $1,500 on a lottery ticket, you'd only be able to write off up to $1,500 in losses against it, even if you lost a lot more than that.

Claiming the Deduction

To be able to deduct gambling losses to offset some or all of your winnings, you will have to itemize your deductions. This means that you can't claim the standard deduction. Once you choose to itemize, you can write off all of your losses, up to your winnings, on line 28 of the Schedule A form. Unfortunately, if you pay the alternative minimum tax instead of regular income tax, you lose the ability to claim the gambling loss deduction.

Substantiating the Deduction

You also need to be able to prove how much you lost. The IRS recommends keeping a diary with the dates you play, what you play, where you play, who was with you and what you won or lost. Saving supporting documentation -- like hotel bills that show you stayed at the casino on the dates you were gambling -- can help, too. Another way to track your losses is to use a player's club card that logs your activity in the casino's computers, since you can have the casino generate a printout of your gambling activity.


About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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