I had both W-2G gambling ($1714)and 1099Misc PRIZE for winning a poker tournament ($1425). Deducted $3139 for gambling loss. Return was rejected for that item. Please advise.

JamesG1

Was your 2021 Federal 1040 tax return transmitted and rejected by the IRS? Or was you return subject to errors under Review? Or something else? Please clarify.

Gambling winnings and losses can be reported at Federal / Wages & Income / Your Income / Less Common Income / Gambling Winnings.

Gambling winnings are reported on line 8b of 2021 1040 Schedule 1 Additional Income and Adjustments to Income.

Gambling losses are reported on line 16 of 2021 1040 Schedule A Itemized Deductions. Schedule A Itemized Deductions is not used if you claim a standard deduction on your 2021 1040 tax return.

See this TurboTax Help.

@robertcfein2000

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LindaAAnswer

Employee

No, gambling losses are deductible only to the extent of gambling winnings.

For more information, including documentation requirements, please see Can You Claim Gambling Losses on Your Taxes?

dakrebs

The Schedule 1, line 8 for 2021 has been expanded into several lines, namely lines 8.a. through 8.z. In prior years if you had received a 1099-Misc, Turbotax would ask what the nature of the 1099-Misc was. One of the choices was "Gambling" and it was recorded on a single line 8 along with your W-2G winnings (so you could offset all gambling losses against line 8).

To deal with the situation in tax year 2021 where the line 8. on Schedule 1 has been expanded, is to simply "override" the entry where an amount from a 1099-Misc has been entered on one of the line 8 subsections, blank that entry out and add it to line 8.b. where "Gambling" winnings are shown. (The problem here is that Turbotax did not give the option of describing the 1099-Misc as having been derived from Gambling activities.) I did this, all worked well, and my return was accepted by the IRS. If the IRS should ever question this, you can simply explain to them what you did and why. You reported all income, so there should not be a problem.

The thing to remember is that, regardless of the form used, "gains from wagering activities" is the essence of what the IRC (Internal Revenue Code) speaks to, and gains can be reported on Forms W-2G as well as a 1099-Misc.

It is very important, to stress what I have previously mentioned, that the IRC speaks of "Gains from wagering activities," and "Losses from wagering activities." It does not say winnings from gambling or losses from gambling. Furthermore, it does not define anywhere in the IRC what it means by "Gains from or Losses from wagering activities." Both the terms "Gains" and "Wagering" activities are much broader in their meanings.

It therefore follows that something like gains from casino drawings, where the tickets are earned from slot machine play, could easily fit into the definition of gains from wagering, thus losses could be applied to both the amounts reported on W-2G and Form 1099-Misc.

In a previous reply to this question, I referred to the Tax Court case, Libutti vs. The Commissioner dated March 7, 1996. In that case, a heavy gambler (Libutti) spent millions of dollars gambling at a New Jersey casino. The casino, in turn, and as an enticement to frequent the casino, gave Libutti expensive gifts, including exotic cars, diamond jewelry, expensive travel vouchers, etc. exceeding $2.5 million in value. The casino issued 1099-Misc forms to Libutti for the value of these "comps" or gifts and Libutti, in turn, applied his gambling losses against all of the 1099-Misc income. The IRS took the position that Libutti could not offset his losses against such gifts (comps). However, the Tax Court sided with Libutti, in essence saying that the strong relationship between his gambling activities at the casino, and the casino's providing comps or gifts to Libutti all fell into the meaning of "gains from wagering activities" and, therefore, he could offset his losses against both the wagering winnings (gains) as well as the comps (gains). They pointed out the obvious in saying that such gifts or comps never would have been given to Libutti except for his gambling activity. In other words, the character of his gains was the same regardless of how they were received or on what forms they were reported. There is a similar relationship between gains from slot machine play, and gains from drawings where the tickets for the drawings are earned because of, and only because of, machine play. Though the gains from the slots are reported on Form W-2G, and the gains from the drawings are reported on Form 1099-Misc, the wagering losses for machine play can be offset against both.

dcc56

My return was rejected as well.

I have a large amount won as a prize, but I had to play slots in order to obtain "entries" or tickets for the prize drawing. I attempted to list my slot losses in the proper area to offset the Prize. My return was rejected because I did not have a W-2G to claim the deduction amount. I did not get any W2-Gs during the year, I only have the 1099-misc for the prize drawing. This appears to be a flaw in the Turbo Tax software. From what I have read here, I should be able to claim or deduct my losses in Slots to reduce the taxable amount of my prize. Comments? [email address removed]

JB Dayrelton

Get your win/loss statement. You can only deduct losses if itemizing.

You must report your W2-Gs or 1099-MISCs without modification of amount.

If your win loss shows winnings other than the above, net those against the losses.

And if there are any losses left, deduct them if it you are itemizing

Otherwise, if you have more other winnings than losses - forget it (or report it)

REvans2001

That's all good info but where should one enter the 1099 misc amount won in the tournament? Can I add it to Schedule 1 line 8b gambling income and therefore have it offset in the schedule A gambling losses?

REvans2001

Yes you can. See reply with case law and rationale from retired CPA, @dakrebs . I think you just add the 1099misc amount to line 8b gambling winnings and then you can use the gambling losses from your win/loss statement to offset those winnings.