No, The Law Hasn’t Changed: Professional Gamblers Cannot Deduct Gambling Losses in Excess of Wins

The Internal Revenue Code (IRC) is law. It was passed by Congress and signed into law by the President. One section of the law is IRC §165(d). It reads:

(d) Wagering losses
Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.

Courts have interpreted this the same for amateur and professional gamblers: You cannot take gambling losses in excess of wins. A few of my professional gambling clients have asked me if the law recently changed (they were told it had). It has not changed.

The Tax Court most recently looked at this in 2014. In Lakhani v. Commissioner (142 T.C. No. 8), a full precedential decision of the Tax Court, the Court wrote,

The basis for the enactment of section 23(g), as set forth in the last sentence of the foregoing committee report, still pertains to taxpayer reporting of gambling gains and losses. Therefore, it still constitutes a “rational basis” for the continued application of section 165(d) to the losses. There being no constitutional impediment to the continued application of section 165(d), we reiterate our admonition in Tschetschot that this Court “is not free to rewrite the Internal Revenue Code and regulations * * * [but is] bound by the law as it currently exists”. [footnote omitted]

(For those wondering, Section 23(g) is from the Revenue Code of 1934 and reads identically to Section 165(d) of the current IRC.)

Is it fair that a professional gambler is held to a different standard than anyone in a different profession? Definitely not. However, it’s the law; until Congress changes it I can take a Net Operating Loss if my business loses money but a professional gambler cannot.

Another client asked about running gambling through a business entity so that he can take losses that way. That, too, will not work. Put simply, until IRC §165(d) is repealed gamblers cannot take losses in excess of wins.

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