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Gambling Losses Deduction

You can deduct gambling losses as a miscellaneous itemized deduction on your Schedule A, but only up to the amount you report in gambling winnings on your 1040.

Unlike some other deductions, the gambling losses deduction is not subject to the 2% limit requiring that expenses amount to at least 2% of adjusted gross income (AGI) before they can be deducted.

In order to take the deduction, you need to keep records of both your losses and winnings. The IRS recommends maintaining a diary of the date and type of your wagers, the location of the gambling establishment, the names of other people present, and how much you win or lose.

Plus in the event of an audit you must be able to offer concrete proof of your wins and losses in the form of Form W-2G [Certain Gambling Winnings], Form 5754 [Statement by Person(s) Receiving Gambling Winnings], wagering tickets, canceled checks, substitute checks, credit records, bank withdrawals, statements of winnings, or payment slips from the gambling establishment.