It’s common knowledge that if you're lucky enough to win the lottery, Uncle Sam will invariably expect a portion. However, many people are not aware that they can also claim some lottery losses on their federal income taxes. As far as the IRS is concerned, these winnings are considered gambling regardless of whether they are from a raffle, a scratch-off, sports betting, lotto ticket, horse race or a slot machine payout from a casino – all must be reported as taxable income. There are limitations to claiming these winnings, and in order to claim the gambling loss deduction on your losses, you must also report any winnings (regardless of amount) on your tax return.
In order to claim lottery scratch-offs on your tax return, you will have to itemize both of your winnings and your losses. In order to be eligible to do so, your itemized expenses must exceed the standard deduction offered by the IRS.
Are Lottery Tickets Tax Deductible?
The short answer to this question is, yes, you can claim non-winning lottery tickets on your taxes. But, like most things involving the IRS, there are rules and requirements that must be met in order to do so. You won’t be able to deduct losses on your taxes if you go with standard deductions. To claim lotto ticket losses on your taxes, first, you will have to be eligible to itemize. If your total gambling losses – plus all of your other itemized expenses – exceed the standard deduction for your filing status, only then would you itemize.
To report any gambling winnings, keep accurate journals or records and proof of all your winnings and losses. These records should detail the date of your winnings or losses and the type of gambling you participated in. In addition, you will need the name of the people you were with and the amount you won or lost. Also, it's advised to keep losing scratch-off tickets, casino receipts, canceled checks or credit card statements that you used to gamble. In the event the IRS takes a second, closer look at your tax returns, you will be able to easily prove any gambling losses tax deduction that you claimed.
Because you need to itemize to claim these deductions, you have to use IRS Form 1040 to report your winnings and losses. You will list all winnings you’ve received from gambling on line 21 of Form 1040, entitled Other Income. This should include winnings of any amount regardless of whether you were given cash at a poker game or you won a car at the casino.
Report gambling losses on Schedule A found on Form 1040 under Other Miscellaneous Deductions. To claim these deductions, you must report all of your winnings as income as well as claiming your qualifying losses separately. You cannot report only your losses or you might find yourself in hot water with the IRS.
Limitations on the Gambling Loss Deduction
While you can deduct gambling losses, these deductions cannot exceed the amount of your total winnings. For example, if you win $1,000 playing the lotto, but you’ve purchased $2,000 worth of losing tickets, you can write off the losing tickets only up to the amount of your $1,000 winnings, and not the entire $2,000 you lost playing. The IRS does this because if you were allowed to deduct all of your losses, then the government would in essence be subsidizing gambling. With this rule in place, at most, you can avoid having to pay taxes on what you did win.
More Deductions for 2018
As of 2018, the definition of deductible gambling losses is increasing to cover expenses involved in gambling beyond the cost of the bet itself. For example, the cost of travel to a casino or track might be deductible, or the cost of phone calls to place bets in states that allow betting by phone. This might not apply to lottery players in most cases, since there are rarely non-bet expenses involved in buying lottery tickets.
On the other hand, the standard deduction is increasing in 2018, which may mean fewer players will find it advantageous to itemize to deduct those gambling losses.
Tax Law in 2017
The lesser standard deduction in 2017 may make it more advantageous for some lottery players to itemize and take that gambling loss deduction. That being said, gambling losses for 2017 only include the actual amount wagered, not other costs related to gambling.
- IRS: Publication 529, Miscellaneous Deductions
- IRS: Topic No. 419 Gambling Income and Losses
- Journal of Accountancy: What the Tax Reform Bill Means for Individuals
- Accounting Web: Gambling Loss Deductions Broadened Under New Tax Law
- Forbes: New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More