Question

Facts: Frank J. Wilson is a part-time CPA earning wages of $80,000 annually. Mr. Wilson is also a professional blackjack player whose gambling activities rise to the level of a trade or business. In some years he’s won a lot of money (over $1 million in winnings once), and in others he’s lost a lot of money. This year, Mr. Wilson generated $25,000 in winnings and $216,000 playing blackjack.

Mr. Wilson keeps meticulous records of his gains, losses and expenses. Besides gambling winnings and losses described above, this year Mr. Wilson also incurred $15,000 in ordinary business expenses in conducting his gambling business (mainly, compensation for a part-time secretary). The casinos picked up his meals, entertainment, and room costs of $150,000, that is, he was “comped” for these costs.

Issue 1: In 2020, to what extent are the losses and expenses related to Mr. Williams’ gambling deductible?

Issue 2: If the year were 2015, would your answer to Issue 1 change?

Please answer the following questions based on the facts and issues:

1) Give a simple, nontechnical 1 sentence answer to the question posed.

2) What is (are) the Code section(s) at issue?  

3) Are any Treasury Regulations relevant?

4) List the case/ruling authority on which you relied to arrive at your answer (please provide the name of any case, not just a citation).

Answer 1

Issue 1 Gambling losses are indeed tax deductible, but only to the extent of your winnings and requires you to report all the money you win as taxable income on your return. The deduction is only available if you itemize your deductions. If you claim the standard deduction, then you can't reduce your tax by your gambling losses.

The amount of gambling losses you can deduct can never exceed the winnings you report as income. For example, if you have $5,000 in winnings but $8,000 in losses, your deduction is limited to $5,000. You could not write off the remaining $3,000, or carry it forward to future years.

Issue 2 The biggest single thing to know is that you can only deduct gambling losses for the year to the extent of your gambling winnings for the year. So if you won $2,500 gambling in 2015, the most you can deduct of your losses is $2,500 — no matter how much you lost. This limitation applies to the combined results from any and all types of gambling — playing the lottery, slots, poker, the horses, and all the rest. And the limitation applies to both amateur and professional gamblers.