Tax season may have concluded by the time this is published, but we continue to get plenty of questions about the topic. We’ve shared what it takes to be able to deduct gambling winnings for US taxpayers, but this follow-up question covers a specific angle that many wonder:
My tax lady said that theirs a limit of how much you can claim of how much you lost. Is that true? Is there a limit?
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There are limits, for sure, and they come primarily in two forms. (And as a reminder, this should not be considered as a legal consultation, given we’re not accountants – just friendly advice. All players should consult with accountants familiar with gambling tax laws for specific advice related to your own specific situation.)
Can You Deduct the Winnings at All?
If you do not have enough deductions to reach the point of being able to itemize your deductions on your taxes, you’re already behind the curve, given you won’t be able to deduct them. That’s because the standard deduction effectively encompasses all your deductions instead.
So if you’re receiving the standard deduction, that’s all you get – and that means no specific additional benefit to reduce your gambling winnings.
How Much Did You Win in Total That Year?
When you file your taxes you are supposed to report all winnings, and all losses. Losses can be deducted up to the point of your winnings – you can’t write off losses that aren’t offset by winnings. But if you had a winning year, you can reduce the impact by deducting your losses against the winnings (when you clear the first hurdle of being able to itemize, of course).
So, for example, if you won $3,000, but you lost $5,000, you can deduct $3,000 of your winnings with losses. You can’t deduct the remaining $2,000 because you don’t have winnings to claim against the losses.
On the other hand, if you won $5,000, and lost $3,000, you can deduct the entirely of your $3,000 in losses, with $2,000 remaining as the income left over.
Takeaway
Gambling winnings can be written off in the right circumstances, but all your gambling losses are not necessarily able to be deducted – only the amount that matches against your winnings.
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