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Long Form - Gambling Changes

Introduction

The updated tax code introduces significant changes to how gambling winnings and losses are reported, deducted, and verified. These changes were designed to increase transparency, reduce fraud, and ensure accurate reporting across all forms of gambling — including casinos, sports betting, online platforms, daily fantasy sports, lotteries, raffles, and peer-to-peer games.

For tax professionals, this means new documentation requirements, updated due diligence expectations, and clearer language around what constitutes substantiated gambling loss deductions.

Key Changes at a Glance

🔹 1. Stronger Documentation Requirements

Taxpayers must now provide verifiable proof of gambling losses in order to claim deductions. Acceptable proof includes:

  • Casino win/loss statements
  • Sportsbook monthly/year-end summaries
  • Online platform digital account logs
  • Receipts for wagers
  • Player’s card activity records

Self-created logs without third-party support are no longer sufficient by themselves.

🔹 2. Expanded Definition of “Gambling Activity”

The law now clearly includes:

  • Digital casinos
  • Online sports betting
  • Fantasy sports (DFS)
  • Social gaming platforms that pay out winnings
  • Online sweepstakes/cash prize games

All winnings from these sources are taxable.

🔹 3. Revised Reporting Thresholds & Form Requirements

Many platforms are now required to issue 1099-MISC or 1099-K forms for gambling payouts and transfers.

  • Peer-to-peer payment reporting (CashApp, Venmo, PayPal) expands if the activity resembles gambling income.
  • Some online operators must provide digital summaries even below traditional thresholds.

🔹 4. Losses Still Cannot Exceed Winnings, BUT…

The updated code clarifies:

  • Losses must be matched to specific periods of gambling activity.
  • Tax pros must document how losses were validated.
  • Losses cannot be used to offset unrelated income.

📊 Side-by-Side Comparison: Old vs. New Gambling Tax Rules

Category

Previous Rules

New Gambling Tax Code

Winnings Reporting

Taxpayer reports all winnings; Forms W-2G only for large wins.

More platforms must issue 1099-K, 1099-MISC, or digital summaries; sportsbook & app reporting expanded.

Loss Documentation

Player logs were often accepted.

Logs must be supported by third-party statements (casino/sportsbook/platform).

Types of Gambling Included

Traditional casinos + lotteries primarily.

All online gambling, sports betting, DFS, sweepstakes, and digital payout games explicitly included.

Loss Limitations

Losses deductible up to winnings.

Same rule, but must show matching dates/time periods + proof of actual wagers.

Tax Professional Due Diligence

Minimal.

Required: verify statements, maintain copies, question inconsistencies, document reasoning.

Peer-to-Peer Reporting

Rarely triggered.

More P2P platforms must report gambling-like transaction patterns.

Fraud Prevention Requirement

Not specific.

Tax pros must have written procedures to detect fabricated gambling losses.

Professional Notes & Recommendations

For Tax Preparers:

  • Request win/loss statements up front.
  • Explain that bank statements alone are not proof.
  • Document due diligence in your digital file.
  • Expect more 1099 forms and reconcile them carefully.
  • Encourage clients to use casino or sportsbook account cards each time they play.

For Clients:

  • Keep all digital statements.
  • Request casino win/loss summaries early.
  • Don’t rely on handwritten notebooks.
  • Expect increased IRS verification on large gambling loss claims.