The Ultimate Guide to Deducting Gambling Losses on Your Taxes

What You Need to Know Before Filing Gambling Losses on Your Taxes

Are gambling losses itemized deductions? Yes — but with important limits.

Here's the quick answer:

• You must itemize your deductions on Schedule A (Form 1040) to claim gambling losses
• You cannot deduct more than the total gambling winnings you report as income
• All winnings are taxable regardless of whether you itemize or take the standard deduction
• Starting in 2026, a new law limits your deduction to only 90% of your losses (even if losses are less than winnings)
• No carryforward — you cannot carry unused losses into future tax years

For creative entrepreneurs and freelancers, tax rules around gambling income can catch you completely off guard. Maybe you won a raffle at an industry event. Maybe you spent a weekend in Vegas between shoots. Either way, the IRS wants to know about it — and the rules for what you can deduct are stricter than most people expect.

The core principle is simple: gambling winnings are always taxable income, but losses only reduce that income under specific conditions. And with new legislation taking effect in 2026, even gamblers who break even on paper could owe taxes.

This guide walks you through exactly how the rules work — so you can file correctly and avoid surprises.

Understanding how gambling winnings and losses affect your taxes

When we talk about gambling income, many people think only of the bright lights of a casino or a high-stakes poker game. However, the IRS casts a much wider net. According to Topic no. 419, Gambling income and losses, gambling winnings include money from lotteries, raffles, horse races, and even the fair market value of prizes like cars or trips. If you won a $50,000 Tesla in a charity raffle, that $50,000 is considered taxable income the moment you take the keys.

The most important thing to remember is that the IRS does not care if you ended the year "down" overall. You are required to report the full amount of your winnings as income. You cannot simply subtract your losses from your winnings and report the difference. For example, if you won $5,000 at the track but lost $8,000 over the course of the year, you must still report the $5,000 as "Other Income." Whether you can use that $8,000 loss to offset the win depends entirely on how you file your return.

Distinguishing between casual and professional gamblers

The rules we are discussing in this guide primarily apply to "casual gamblers." But how do you know if you’ve crossed the line into being a professional? The IRS uses a nine-factor test to determine if your gambling is a "trade or business" or just a hobby.

Professional gamblers report their activity on Schedule C. They can deduct business expenses, but they also have to pay self-employment tax on their net earnings. To qualify as a professional, you must show a clear profit motive and treat the activity with the same regularity and care as a standard business. For most of our creative clients who enjoy a weekend at the craps table, you will fall under the casual gambler rules.

Why gambling losses are itemized deductions on your tax return

One of the most frequent questions we hear is: "Can't I just subtract my losses from my wins?" Unfortunately, the tax code doesn't work that way for individuals. According to Publication 529, Miscellaneous Deductions, gambling losses are classified as "Other Itemized Deductions."

This means that your losses do not reduce your Adjusted Gross Income (AGI). Instead, they are used to reduce your taxable income only after your AGI has been calculated. This distinction is vital because a higher AGI can sometimes limit your eligibility for other tax credits or deductions.

Are gambling losses itemized deductions for casual players

For the casual player, the answer is a resounding yes—provided you actually itemize. You can find more details on this specific mechanic in our blog post: gambling-losses-should-just-offset-my-gambling-winnings-right.

The IRS allows you to deduct wagering losses up to the amount of your winnings. If you won $10,000 and lost $15,000, you can only deduct $10,000. The remaining $5,000 is essentially "lost" for tax purposes; you cannot carry it forward to next year or use it to offset your salary or freelance income.

Choosing between the standard deduction and itemizing gambling losses

This is where many taxpayers get stuck. To claim your gambling losses, you must forgo the standard deduction and choose to itemize. If your total itemized deductions (which include things like mortgage interest, state and local taxes, and charitable gifts) are less than the standard deduction for your filing status, claiming your gambling losses might actually result in a higher tax bill.

For example, in 2024, the standard deduction for a single filer is $14,600. If you have $5,000 in gambling winnings and $5,000 in losses, but no other deductions, it wouldn't make sense to itemize just to claim that $5,000 loss. You would take the $14,600 standard deduction instead. However, you still have to report the $5,000 in winnings as income! This is a "tax trap" where you pay tax on the win but get zero benefit from the loss.

Reporting your gambling activity to the IRS

If you hit a significant jackpot, the casino or gaming facility will likely issue you a Form W-2G Certain Gambling Winnings. This form reports your gross winnings and any federal tax withholding to both you and the IRS. Common triggers for a W-2G include:

• $1,200 or more in winnings from bingo or slot machines.
• $1,500 or more in winnings from keno.
• $5,000 or more in winnings from a poker tournament.
• $600 or more in winnings if the payout is at least 300 times the amount of the wager.

Even if you don't receive a W-2G, you are legally required to report every penny of your winnings.

Using Schedule 1 to report all gambling winnings

All your gambling winnings are funneled into your main tax return via Schedule 1 Additional Income and Adjustments to Income. You will typically enter the total amount on Line 8 under "Other Income." This amount then flows to your Form 1040 and increases your total income for the year.

Claiming gambling losses as itemized deductions on Schedule A

To offset those winnings, you head over to Schedule A Itemized Deductions. You will list your losses under the "Other Itemized Deductions" section. Remember the golden rule: your entry on Schedule A cannot exceed the total winnings you reported on Schedule 1.

One small relief the IRS provides is the ability to "net" wins and losses within a single session or day for the same type of wagering. For example, if you play slots for four hours and end the day down $200, you generally don't have to report every winning spin as income and every losing spin as a loss; you can report the net result of that specific session. However, you cannot net a win on Monday against a loss on Tuesday.

The impact of the One Big Beautiful Bill Act on future deductions

If you think the current rules are tough, buckle up. The One Big Beautiful Bill Act provisions, signed into law in 2025, introduce a massive shift starting in the 2026 tax year. Section 4306 of this act fundamentally changes the math for every gambler in America.

Currently, if you win $100,000 and lose $100,000, your net tax impact is zero (assuming you itemize). Starting in 2026, the law limits your gambling loss deduction to 90% of your losses.

How the 90% limitation creates phantom income

This 90% cap creates what tax professionals call "phantom income." Let's look at an example for the 2026 tax year:

• Winnings: $100,000
• Losses: $100,000
• Allowable Deduction: $90,000 (90% of the $100,000 loss)
• Taxable Profit: $10,000

Even though you broke even at the casino, the IRS will treat you as if you made a $10,000 profit. If you are in the 37% tax bracket, you could owe $3,700 in taxes on a year where you didn't actually make a dime. This "10:9 ratio" is a revenue-raising measure estimated to bring in $1.1 billion over eight years, but it effectively increases the tax rate for every frequent gambler.

State tax variations and conformity issues

To make matters even more complicated, state tax rules often differ from federal rules. Some states do not allow gambling loss deductions at all, even if you itemize on your federal return. For example, in states like Illinois or Indiana, you might pay state tax on your total winnings without any offset for losses.

When the 90% federal cap takes effect in 2026, many states may choose not to "conform" to this new rule, leading to situations where your federal and state taxable income from gambling are completely different. We always recommend checking the Tax Foundation state comparison charts to see how your specific state handles these wagers.

Essential record keeping for every gambler

If you are going to claim that gambling losses are itemized deductions, you must be prepared to prove it. The IRS is notoriously skeptical of gambling losses because they are so easy to fabricate. A simple "win/loss statement" from a casino at the end of the year is often not enough to survive an audit.

The IRS requires a contemporaneous diary or log. This means you should be recording your activity as it happens, not trying to remember it six months later.

Documentation required to substantiate your claims

Your gambling log should include:

1. The date and type of specific wager or gambling activity.
2. The name and address of the gambling establishment.
3. The names of other persons present with you at the establishment.
4. The amount(s) you won or lost.

In addition to your diary, you should keep:

• Form W-2Gs.
• Wagering tickets and receipts.
• Canceled checks or bank statements showing withdrawals at the casino.
• Credit records.

For more visual learners, the IRS provides IRS videos on recordkeeping that explain exactly how to stay organized.

Frequently Asked Questions about gambling tax rules

Can I deduct travel and hotel expenses

For casual gamblers, the answer is no. Travel, meals, and lodging are considered personal expenses and are not deductible. Even if you only went to Atlantic City to gamble, those costs are not part of your "wagering losses." Only the actual money bet on the game counts. One exception is for professional gamblers, who may be able to deduct these as business expenses on Schedule C, or certain mandatory tournament entry fees that are integral to the wager.

Do professional gamblers follow different rules

Yes. Professional gamblers report their income and expenses on Schedule C. This allows them to deduct "ordinary and necessary" business expenses (like travel or data subscriptions) that casual gamblers cannot. However, they also face higher scrutiny from the IRS and must pay self-employment tax. The Tax Cuts and Jobs Act (TCJA) also modified some of these rules, generally limiting total business losses to the amount of winnings, similar to the casual rule.

What happens if my losses exceed my winnings

If you lose more than you win, your deduction is capped at the amount of your winnings. You cannot use excess gambling losses to lower your tax bill on your "day job" income. There is no carryforward or carryback for these losses; they simply vanish at the end of the tax year. This is why it is so critical to track your wins and losses accurately throughout the year—you don't want to pay tax on a "win" if you have "losses" available to offset it.

Conclusion

Navigating taxes can feel like a gamble, but it doesn't have to be. Whether you're a creative entrepreneur who hit a lucky streak or a freelancer who enjoys the occasional sports bet, understanding that gambling losses are itemized deductions is the first step toward staying compliant.

The rules are complex, and with the 90% limitation looming in 2026, the "cost" of gambling is about to go up for everyone. At Core Group, we specialize in taking the stress out of financial management for creatives. We provide a profit-first playbook that ensures you have peace of mind, allowing you to focus on your craft while we handle the numbers.

If you’re worried about how your winnings (or losses) will impact your tax return this year, we’re here to help. More info about tax planning services is available to help you strategize and keep more of what you earn. Don't leave your taxes to chance—let us help you win the long game.