Casino losses - can you deduct from taxes

[KellyJef]

I was talking to my BIL yesterday and he got a profit/loss statement from the casino which shows that he lost about $11,000 last year.

He says that he will be able to deduct that money from his taxes.

Is that true? I didn't think it would be, but now that I think about it, I won $2,000 last year and the casino took my license and wrote me a receipt for my winnings that I immediately dropped off at my tax preparer's office to put in my file so I wouldn't forget to declare it this year.

If I have to pay taxes on my winnings, maybe it makes sense that you can deduct your losses?

[wincrasher]

Topic 419 - Gambling Income and Losses

The following rules only apply to casual gamblers. Gambling winnings are fully taxable and must be reported on your tax return. You must file Form 1040 (PDF) and include all of your winnings. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips. For additional information, refer to Publication 525, Taxable and Nontaxable Income.

A payer is required to issue you a Form W-2G (PDF) if you receive certain gambling winnings or if you have any gambling winnings subject to Federal income tax withholding. All gambling winnings must be reported irrespective as to whether any portion thereof is subject to withholding. In addition, you may be required to pay an estimated tax on your gambling winnings. For information on withholding on gambling winnings, refer to Publication 505, Tax Withholding and Estimated Tax.

You may deduct gambling losses only if you itemize deductions. Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A (PDF). However, the amount of losses you deduct may not be more than the amount of gambling income you have reported on your return. It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. Refer to Publication 529, Miscellaneous Deductions, for more information.

[disneysteve]

In plain English, you can deduct gambling losses but only to offset gambling winnings.

Single wins of $1,200 or more get you a Form W-2G from the casino and you have to report those when you file your taxes. If you are reporting wins like that, you can then deduct any losses against that.

Example: A few years ago, we took a cruise. While on the cruise, we played bingo and won the grand prize of a free cruise. I think it was valued at $2,500 or somewhere around there. I had to report that on my taxes. However, I also reported that I had lost $300 in the ship's casino as well as a few hundred more in Atlantic City that year (documented by my win/loss statement from the casino). That reduced the taxes we had to pay on the free cruise.

You can not deduct losses if you aren't also reporting wins.

[swanson719]

Short version. Your BIL lost $11,000 and cannot file it as a deduction since it's the cumulative of his profit/loss statement. That's why it's called gambling. If you could always write off your losses, that would be gambling with other peoples money. Even more people would live at the casino.

[wincrasher]

That is not correct. Read the rules. He can deduct all losses to the limit of his winnings. So if they file jointly, they can offset her $2000 winnings with his remaining losses.

I think the poster was thinking that she'd pay on her winnings and her husband would take all his losses.

If they filed separately, she'd have to pay on her winnings. He would be out of luck for further decuction if that statement included his winnings.


Sorry - read over that it was BIL. Thought is was her husband. Yeah, she has to pay. He gets no further deduction.

[reallyprettyhappy]

This is an interesting topic to me. It reminds me of a few years ago when my advisor in the Statistics Department at my Uni served as an expert witness for the IRS. Some guy was trying to claim that his 'profession/job/career/business' was gambling, but all he played was slots. He lost something like 1.2 mil and tried to claim it as a business expense. My professor went to court to explain that, statistically, over the long run, a profit could never be made playing only slots. I believe the ruling ended up being that an activity that could only ever lead to losses could not be defined as a 'profession/job/career/business'. It was in interesting case. I'm not sure what state it took place in, but I'll try to find a link.

[Beppington]

Short version. Your BIL lost $11,000 and cannot file it as a deduction since it's the cumulative of his profit/loss statement. That's why it's called gambling. If you could always write off your losses, that would be gambling with other peoples money. Even more people would live at the casino.

Only AIG, Bank of America, Citi, etc. can do this.

[disneysteve]

There are professional gamblers, like the guys on the World Poker Tour circuit, but they aren't playing slots. Actually, there are probably thousands of people at this point who bring in 100K/year or more playing poker. Someone claiming to be a professional slot player is like claiming to be a professional lottery ticket buyer.

[reallyprettyhappy]

There are professional gamblers, like the guys on the World Poker Tour circuit, but they aren't playing slots. Actually, there are probably thousands of people at this point who bring in 100K/year or more playing poker. Someone claiming to be a professional slot player is like claiming to be a professional lottery ticket buyer.

Lol Steve, exactly. That's why the court sided in favor of the IRS. The irony is that this guy was independently wealthy, which is how he lost the 1.2 mil to begin with. This was just in one year, by the way. Can you imagine pumping a couple of mil into slot machines in just one year? Boring. A guy who was in my same program though is now a professional online poker player. He says he makes as much a year as I do...but at least I know I don't lose money when I go to work. But yes, any 'game of skill' (poker mainly, sometimes even black jack, mah jong and craps) at least has the potential for profit over the long run, however slight. Slots might as well be keno or lottery in that regard. The odds are never in your favor over the long run with 'games of chance'.

[feh]

Lol Steve, exactly. That's why the court sided in favor of the IRS. The irony is that this guy was independently wealthy, which is how he lost the 1.2 mil to begin with. This was just in one year, by the way. Can you imagine pumping a couple of mil into slot machines in just one year? Boring. A guy who was in my same program though is now a professional online poker player. He says he makes as much a year as I do...but at least I know I don't lose money when I go to work. But yes, any 'game of skill' (poker mainly, sometimes even black jack, mah jong and craps) at least has the potential for profit over the long run, however slight. Slots might as well be keno or lottery in that regard. The odds are never in your favor over the long run with 'games of chance'.

Craps isn't included in that list - it's a game of pure chance. The house has the edge, and there's no way to overcome it.

[reallyprettyhappy]

Craps isn't included in that list - it's a game of pure chance. The house has the edge, and there's no way to overcome it.

That's not exactly true in all cases. Its been a while since my probablitily theory courses, so forgive me the specifics, but as I recall, it has to do strictly with the odds bet. The higher 'odds' the house offers, the more advantaged the player becomes. Even still, given that the 'advantage' only covers one of the possible bets, the favorable margin for craps is very very slim. I'd say this one could go into either camp. Same is true for blackjack. Yes, some small advantage can be gained through skill, but the house controls the rules, which control the overall probability of the game.

Edited to add: after thinking more about it, I guess rather than classifying craps as a game of skill, it really is just one of few where the player can have the odds slightly in their favor given the odds bet explained above. I guess the only skill involved is finding a casino that give 100x odds...

[feh]

That's not exactly true in all cases. Its been a while since my probablitily theory courses, so forgive me the specifics, but as I recall, it has to do strictly with the odds bet. The higher 'odds' the house offers, the more advantaged the player becomes. Even still, given that the 'advantage' only covers one of the possible bets, the favorable margin for craps is very very slim. I'd say this one could go into either camp.

Not quite correct. The odds bet in craps is the only bet in the casino where the house doesn't have an advantage. But, the player doesn't have an advantage either; you get "true" odds on this bet. So, the higher the multiplier the casino allows on this bet, the more you can reduce the overall house advantage for the game, but you can't eliminate it. Craps is a long-term loser, and there's no way to remedy that.

Same is true for blackjack. Yes, some small advantage can be gained through skill, but the house controls the rules, which control the overall probability of the game.

Blackjack is completely different - card counting can give the player an advantage. Of course, if the casino discovers somebody is counting cards, they can just refuse to let them play.

[reallyprettyhappy]

That sounds about right...like I said, it's been years since I studied the numbers Being a truly risk-adverse person, I rarely gamble these days. I always think of something my advisor used to say: The only way to beat the house is to work for them...I also find gambling generally boring, so don't ask me why I chose gaming and gambling as a concentration in school I'm just a numbers geek I guess.

[disneysteve]

Just to further educate anyone who doesn't know, the reason texas hold'em poker is different than the other games is because players are not playing against the house. They are playing against each other. It is the only game in the casino (I think) where that is true. In other games, you are trying to beat the house, but the rules are such that the house always has the edge, though it might be exceedingly small like with craps and blackjack, or very large like with roulette and slots.

Other than poker, all casino games are ultimately losers in the long run, but that doesn't mean you can't ever win. I know of video poker games that have a payout rate of 99.96%. That means that a player using perfect poker strategy can expect to lose just 40 cents for every $1,000 wagered over time. With that slim of a house advantage, there will be many playing sessions that end in the player's favor. Same goes for blackjack or craps if the player knows what he is doing.

Of my last 6 casino visits, I came home a winner 5 times and my total winnings significantly exceeded my losses on the losing trip. Though I don't gamble to make money. I gamble for entertainment. Unlike reallyprettyhappy, I enjoy the experience. I don't generally find it boring at all. If I win, that's always nice. If I lose, that's the cost of being entertained for a few hours.

[ea1776]

Not quite correct. The odds bet in craps is the only bet in the casino where the house doesn't have an advantage. But, the player doesn't have an advantage either; you get "true" odds on this bet. So, the higher the multiplier the casino allows on this bet, the more you can reduce the overall house advantage for the game, but you can't eliminate it. Craps is a long-term loser, and there's no way to remedy that.



Blackjack is completely different - card counting can give the player an advantage. Of course, if the casino discovers somebody is counting cards, they can just refuse to let them play.

Craps is probably the best game in the casino in terms of odds for the player (when played properly). Most of the "single deck blackjack" offers in vegas reduce your payouts for blackjacking, which takes a big edge off even when card-counting is factored in. Card counting = over-rated.

blackjack and craps are all i play in vegas. if you play craps and can't remember anything else, remember this - stay away from any bet in the middle of the table that the stick man controls. those bets are all sucker bets. do take maximum odds on a few come bet points and you will break even in the long run (or come out ahead with free drinks and other casino perks).