J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

11.3 Gambling Winnings and Losses

Gambling winnings are taxable but losses are limited.

If you are not a professional gambler, gambling winnings must be reported as “other income” on Line 21 of Form 1040. You cannot reduce the winnings by your losses for the year.

Losses from gambling are deductible only up to the amount of gambling winnings. You may not deduct a net gambling loss even though a particular state says gambling is legal. Nor does it matter that your business is gambling. You may not deduct a net loss from wagering transactions even if you are a professional gambler (see below).

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Filing Tip

Winnings Paid in Installments

Gambling losses are deductible as miscellaneous deductions up to the amount of your gambling winnings. Lottery winnings paid in installments qualify as such gambling winnings. If you receive lottery installments in 2012, for instance, you may deduct any gambling losses incurred in 2012 up to the amount of the installments. Lottery winnings paid in installments do not lose their characteristic as gambling winnings.

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If you are not a professional gambler, the gambling winnings included on Form 1040 as “other income” (Line 21) may be offset by gambling losses if you itemize deductions. Gambling losses (not exceeding the amount of the gains) are deductible on Schedule A as a miscellaneous deduction (Line 28) that ...