Gambling Loss: What It Means and How It Works

What Is a Gambling Loss?

A gambling loss is a loss resulting from risking money or other stakes on games of chance or wagering events with uncertain outcomes. These losses can only be claimed against gambling income.

Understanding a Gambling Loss

The Internal Revenue Service (IRS) views gambling winnings as income and therefore requires casual gamblers—those who are not in the business of gambling—to pay tax on the winnings. It allows people to deduct gambling losses on their taxes, but only if they itemize their deductions on Schedule A (Form 1040). In addition, the gambling losses can't exceed the amount of someone's reported gambling income.

The IRS requires taxpayers to keep an accurate diary or similar record of winnings and losses as well as provide receipts, tickets, or other records to deduct their gambling losses if necessary. The following gambling activities can produce winnings or losses: lotteries, raffles, dog races, horse races, casino games, poker games, and sports events. Taxpayer notes must include the date and type of gambling; the name and address of the gambling venue; the people with whom the taxpayer gambled, if applicable; and the amounts won and lost.

Gambling losses that are deducted cannot exceed the winnings reported as income. So if a gambler has $3,000 in winnings but $7,000 in losses, they can only deduct $3,000. The remaining $4,000 cannot be written off or carried forward to future years. If a gambler has $3,000 in winnings and $1,000 in losses, they must report the $3,000 as income and then claim the $1,000 as an itemized deduction.

The Effects of Gambling Loss

Some people suffer from gambling disorder—an uncontrollable urge to keep gambling, even when doing so harms their lives, livelihoods, and relationships. Similar to drugs and alcohol, gambling stimulates the brain's reward system, which can lead to addiction. If you struggle with compulsive gambling, you may be losing bets, hiding your behavior, accumulating debt, depleting your savings, and even stealing to support your addiction.

Compulsive gamblers can often feel compelled to try to recover their money, which can lead to increased losses. The reality is that a person can win $10,000 at Casino A one night, lose $9,000 at Casino B the next night, and go home with a W-2 for the $10,000 from Casino A—income on which they must still pay taxes.

Gambling losses can have a deleterious effect on many aspects of one's life. Crippling gambling loss or debt can lead to financial problems, including bankruptcy; legal problems or imprisonment; job loss; poor health; and suicidal thoughts and suicide attempts.

The Bottom Line

A gambling loss is a financial loss that has resulted from betting money or other items on games of chance or events with uncertain outcomes, like sporting events. From a tax perspective, gambling income is considered to be income and must be reported. Gambling losses can be deducted from a taxpayer's federal income taxes but only if the person itemizes deductions on Schedule A (Form 1040). Any losses that are deducted can't surpass reported gambling income.