Is a Gambling Loss a Tax Write-off?

Unlike many aspects of the U.S. tax code, the sections that deal with gambling losses are relatively straightforward. To the Internal Revenue Service (IRS), nonprofessional gamblers can write off losses, but only if they keep records and itemize deductions. Professional gamblers may deduct their losses as long as they show their activities are full-time. Failure to follow these basic strictures may result in audits, fines and penalties that can easily exceed the original loss.

Basic Guidelines

Nonprofessional gamblers can find the basic guidelines in Topic 419 of the IRS's official website, IRS.gov. According to the IRS, gambling winnings count as income, and gamblers must include them on Line 21 of Form 1040. Examples include winnings from casinos, dog and horse races, lotteries and raffles, or fair market value of such non-cash prizes as cars, houses and trips. Nonprofessional gamblers may report losses on Line 28 of Schedule A of Form 1040. However, they cannot use the 1040A or1040EZ forms.

Claiming Losses

From the IRS's standpoint, the gambler is responsible for documenting all activities related to their passion. To simplify things, the IRS recommends that taxpayers keep a diary of their wagering activities. For proper credit, taxpayers must provide receipts, statements and tickets showing actual winnings and losses. Acceptable records might include written logs showing the amount, date, time and location of their wagers, according to bankrate.com. They also recommend hanging on to losing bingo cards or lottery tickets.

Professional Gamblers

In January 2011, the U.S. Tax Court allowed professional gambler Robert Mayo to claim $10,968 in deductions for expenses -- such as car travel to racetracks -- against $120,463 that he netted for his wagers, according to a "Las Vegas Review-Journal" report. However, legal experts did not expect the ruling to affect many gamblers. The IRS allows professional gamblers to declare winnings and losses on Schedule C forms and deduct losses larger than earnings. However, to qualify, the taxpayer must show that gambling is their principal, full-time livelihood, the newspaper reported.

Writeoff Amounts

By IRS rules, the best that nonprofessional gamblers can do is use their winnings to offset whatever losses they rack up. Even then, those allowances are limited. According to bankrate.com, for example, if someone spends $100 on lottery tickets but wins $75, he cannot deduct the additional $25. These issues make it all the more important to keep detailed wagering records. Although the taxpayer need not submit them with a return, such documentation can prove helpful should the IRS ever contest the claim.