Gambling Losses

[Harvey Lucas]

This is an interesting question.

I have a client who won the lotto in 2001.

He gets paid 400,000 per year for 25 years.

However, he spends about 10,000 per year now on lotto tickets that he does not win on.

Can the 10,000 per current year lotto losses, be used on shedule a as a deduction?

Thanks,
Harvey Lucas

[taxmandan]

Unresearched opinion, the win was in 2001, not the current year so no gambling loss deduction allowed. Payout schedule isn't the same as winning every year IMWAG.

[Harvey Lucas]

Yes, that is what I was thinking too, however, he does get a W2-G form every year for 400,000...

So, it appears that he should be able to take Sch A gamblings loss's.

Anyone else??

Thanks,
Harvey Lucas

[Koss]

25-year payout

taxmandan noted that "the win was in 2001." And it was. But I don't think it's that simple. Because the income was not all taxed to him in 2001.

When you say that "the win was in 2001," but he's not getting the money until later years, it almost makes it sound like a cash vs. accrual issue.

But it isn't. He's an individual taxpayer on the cash method of accounting.

By electing the amortized payout, he gave up his right to get a lump sum back in 2001.

He didn't have $1 million in gambling winnings back in 2001.

He has $400K in gambling winnings each year.

I say take it on Schedule A in the current year. He has current year gambling winnings, and he can take current year gambling losses.

BMK

[Koss]

Question

Why is this guy still playing the lottery?

[Koss]

Answer

Maybe he thinks he's a CNN producer...

http://www.huffingtonpost.com/2012/02/15/cnn-producer-wins-lottery_n_1280440.html

BMK

[taxmandan]

If he gets a W-2G every year then I would agree with Koss. I always thought that winners get yearly payments from an annuity the state bought back when they won, not that it changes things except I might expect a 1099 of some sort in the event not a W-2G.

[Harvey Lucas]

Thank you guys.

Harvey Lucas

[New York Enrolled Agent]

Yes, that is what I was thinking too, however, he does get a W2-G form every year for 400,000...

So, it appears that he should be able to take Sch A gamblings loss's.

Anyone else??

Here is a short snip from the 9th circuit of Appeals in a case called Maginnis. It would appear to give support to your position.

Lottery prizes are treated by the tax code as gambling winnings, which are taxed as ordinary income. See I.R.C. § 165(d); Comm'r v. Groetzinger, 480 U.S. 23, 32 n.11 (characterizing a state lottery as "public gambling," in a case treating gambling earnings as ordinary income).

[taxea]

This is an interesting question.

I have a client who won the lotto in 2001.

He gets paid 400,000 per year for 25 years.

However, he spends about 10,000 per year now on lotto tickets that he does not win on.

Can the 10,000 per current year lotto losses, be used on shedule a as a deduction?

Thanks,
Harvey Lucas

If he had any losses in the year of the big win, they should have been taken then. The only thing that can be taken on the 10K is what is equal to whatever he won in the year he spent the 10K.

You cannot attach the losses to the original win because they were not related to that win.

[Koss]

Related?

Taxea wrote:

You cannot attach the losses to the original win because they were not related to that win.

How are losses "related" to a win?

If I win a $5000 instant lottery ticket, and I lose $2000 betting on horse races, are you saying that I can't take the losses against the winnings, because they are not "related"?

If he had any losses in the year of the big win, they should have been taken then. The only thing that can be taken on the 10K is what is equal to whatever he won in the year he spent the 10K.

In the "year of the big win," he only received a W-2G for $400K--not for the entire amount of his winning ticket. His ticket was a $1 million winner. He chose to get $400K per year.

But you're saying that he won $1 million back in 2001. Are you saying that back in that year, he could have taken $800K in losses, even though he only got a W-2G for $400K, and he only received $400K??

That won't fly with the IRS. Gambling losses cannot exceed gambling winnings.

If he's getting a W-2G each year, then has gambling winnings each year. That's how the state has defined it. He may have bought the winning ticket in 2001, but he is receiving the winnings each year for the next 25 years.

He's not on the accrual method of accounting.

BMK

[Gary2]

However, he spends about 10,000 per year now on lotto tickets that he does not win on.

This is a slight tangent: The odds of spending $10,000 on lotto tickets, and having none of them win (not even a free play) are minuscule. If audited, the IRS may seriously question the accuracy of the records.