The Tax Blotter – May 25, 2018
Now that the U.S. Supreme Court has opened the doors for legalized gambling in states other than Nevada, expect more tax questions from clients relating to gambling activities. Take note of these recent developments.
May. 25, 2018
Now that the U.S. Supreme Court has opened the doors for legalized gambling in states other than Nevada, expect more tax questions from clients relating to gambling activities. Take note of these recent developments.
There oughta be a law. After a “false start,” the new Tax Cuts and Jobs Act (TCJA) preserved the itemized deduction for gambling losses. Essentially, you can still deduct the amount of your substantiated losses up to the amount of your winnings for the year. However, due to other changes, including an increase in the standard deduction, you may not itemize deductions any longer. In addition, the TCJA dealt professional gamblers a setback: You can’t deduct losses in excess of income like you could in the past. This provision is effective for 2018 through 2025.
Taxpayer doubles down. A taxpayer engaged in casual gambling activities in 2013, including betting on college and professional sports, playing slot machines and buying lottery tickets. He won more than $5,000 on slot machines at several casinos, but also sustained almost $7,000 in losses. To offset the tax on his winnings, he said the amounts should be reduced by the amount of his bets. In addition, he deducted losses against winnings, even though he was claiming the standard deduction. The Tax Court said “no” on both counts (Bon Viso, TC Memo 2017-154, 8/8/17).
Leave it to the pros. If your gambling activities rise to the level of a professional gambler, you may have more leeway to deduct expenses than a casual bettor does. But the Tax Court recognizes these rules have their limits. In a new case, a professional gambler tried to boost his deductions by writing off the racetrack’s cut from pari-mutuel betting pools. He claimed it was a necessary cost of “doing business.” But the Tax Court and now the Ninth Circuit Court of Appeals nixed this deduction (Lakhani, CA-9 No. No. 14-72576, 5/10/18).