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A friend won a reality show a few weeks ago. About $20k. They gave him all $20k and he has to figure out the taxes.

Riding high on the money, he did what any beer drinking, pot smoking, god-loving American would do - go to Vegas. So he lost about $8k playing blackjack - and astonishingly did so playing $10 a hand. He has records to back this up.

What are the tax implications at the end of the year for this rollercoaster of money? Are the items even related?

His family income is about 120K per year, married with 2 kids if that matters at all.

  • Gambling losses are deductible subject to certain limits and only if he itemizes his deductions. I don't think the $8k gambling loss has anything to do with the tax-ability of the $20k TV award though. – quid Mar 4 '16 at 22:15
  • @quid - his idea was that they would offset - lose for a winning. Same is if you won 3k at the casino one day and lost 3k the next. I am not sure here so that's why I was asking. – blankip_nosupport_for_monica Mar 4 '16 at 22:21
  • I really don't know. I guess you could argue that winning on the TV show was like gambling but he didn't have to put money on the table in order to win the prize... He should probably talk to a CPA because this is a reasonably unique situation. Even then I'd imagine if you talked to more than one CPA you'd get more than one different answer. – quid Mar 4 '16 at 22:27
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    He can only make a deduction for gambling losses up to the amount of his gambling winnings. The reality show probably counts as miscellaneous income so wouldn't be in the same category – Sam Mar 4 '16 at 22:27
  • @quid - he stated to me since he had to put up flight and hotel for reality show that it was basically gambling. Also he mentioned that the losers didn't get paid which again seems like gambling (what is the difference between time and money). Valid points he brought up and out of my league tax-wise. I wouldn't have asked if I didn't think he had at least a sliver of a chance. – blankip_nosupport_for_monica Mar 4 '16 at 22:34
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Gambling losses are only offset by winnings. Those losses can't offset other income. So, the guy that wins the $1M jackpot can deduct the $100 he spent on tickets that year.

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    Agreed, but he had no money at risk, so not gambling. – JTP - Apologise to Monica Mar 4 '16 at 23:07
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    He paid for flight and hotel and an entry fee. It depends on what you mean by at risk. I certainly think he was risking money but not sure IRS agrees with me. – blankip_nosupport_for_monica Mar 4 '16 at 23:09
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    @blankip IRS would most certainly disagree with you. – Joe Mar 4 '16 at 23:13
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    One might make a strong case that the costs to participate in the reality show can be used to offset the winnings. Not from any line of reasoning calling it gambling, simply from that fact that there were documented costs that were incurred to participate. No crossover to the casino. – JTP - Apologise to Monica Mar 5 '16 at 10:30
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    "if we call a tail a leg, how many legs does a dog have?" My 6 year old "4, dad, you can call a tail whatever you want, but a dog still has 4 legs." Let's call every dime I spend a business expense, or better still, a charitable donation. That makes it what? Nonsense. – JTP - Apologise to Monica Mar 15 '16 at 23:04
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Gambling is perhaps not well defined, but it certainly doesn't include things like reality show winnings.

However, it is possible he could deduct something for this. If the reality show qualifies as a "hobby", and his expenses exceed the 2% of AGI requirement, it's possible he could deduct those airplane tickets and such. That deduction is explained in Publication 529.

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My wife was once on a game show. The income was 1099 and wholly unrelated to gambling. I did offset the hotel cost on a schedule C against it (and filed a California return to get back the withholding) but a television appearance for a prize is not gambling. It is pay for a performance and she didn't risk any of her own money. Your friend's 8k loss can only offset casino or lottery winnings, sorry.

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