With taxes, you can't win for losing
If you gamble, your winnings are taxable and your losses are deductible. But commentator and tax attorney Conrad Teitell says good luck trying to get Uncle Sam to accept those deductions.
Conrad Teitell (Cummings & Lockwood)
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TEXT OF COMMENTARY
KAI RYSSDAL: The second leg of horseracing's Triple Crown -- .the Preakness -- is Saturday at the Pimlico Race Course in Baltimore. The Maryland Jockey Club, which hosts the race, says sponsorship this year is down 10 percent and that businesses are watching their pennies and pulling back. Commentator and tax attorney Conrad Teitell says if your horse comes in, you'd better hold on to your wallet.
CONRAD TEITELL: And in the homestretch it's Uncle Sam coming up on the taxpayers.
If your horse comes in, your winnings are taxable. Also taxable, by the way, are winnings from poker, blackjack, roulette, craps, slots. BINGO! You get the picture.
While winnings are clearly taxable, are losses deductible? To deduct losses, you'll have to jump through more hoops than a circus pony.
Losses are deductible only against other gambling income in the same year. They can't be used to offset taxable income from non-gambling activities. And, unless you're a regular on the World Poker Tour, a professional gambler, your losses are deductible against winnings only if you itemize.
Proving losses is tough. You need to keep a log showing winnings and losses. Detail all bets, dates, places and the gambling activities. Sometimes that does the trick. But it's often a longshot.
Consider this sob story that John Greer told the IRS. Greer was in the horse-racing business and owned a mare, Princess of Erin. She delivered a foal that Greer planned to race. The little guy was born after the normal 11-month gestation period, but lived only five days.
Greer conceded that the nice payment he got from the insurance company was taxable. However, he considered the foal a capital asset held for more than six months -- that was the required holding period at the time for favorable long-term capital gains rates. Greer claimed a holding period of 11 months and five days. It started, he maintained, from the date of conception.
Greer had to pay the higher ordinary income tax. An appeals court ruled that the gain was short-term. The mare's holding period was 11 months. Greer's was only five days.
So what's the morning line on your bottom line? Hang your horseshoe with the ends pointing up so your luck doesn't fall out. And then for you, it just might be a horse of a different color!
RYSSDAL: Conrad Teitell is a tax attorney in estate law.
