As it stands, non-professional gamblers are supposed to report all winning sessions as taxable income and then are allowed to report losing sessions as an itemized deduction. The proposed fiscal cliff deal claims to phase out itemized deductions for individuals with income over $250k. I am not sure the specifics of how quickly the phase out occurs for income over that amount or if there is an exception for gambling losses, but this could have a big effect on gambling.

Let's say Gambler makes $200k in wages every year and regularly plays in a poker game where he breaks even in the long run but regularly wins or loses $1,000 in any given session. In 2013, he plays 250 sessions. 125 of them are winning sessions totaling $125,000 and the other 125 are losing sessions where he loses $125,000. His reportable income is now $325,000. Under the current law, he could deduct the $125,000 and pay tax on just his $200k in wages. Under the new law, however, a portion of these losses may be disallowed due to the itemized deduction phaseout. Maybe he can only deduct $75,000. Now, he has to pay income tax on an additional $50,000 of income, even though he was a break-even player.

I think this will have the largest effect on large poker tournaments where players not only have large wins that would normally be offset by buy-ins to other tournaments, but also cannot avoid reporting completely because they are issued W-2Gs for wins in excess of $5,000. Let's hope this last-minute legislation included an exception to the phaseout for gambling losses.

Relevant quotes from the other thread:

Here is the part of the Internal Revenue Code (section 68) that the above language replaces:

http://www.taxalmanac.org/index.php/...zed_deductions

The following succeeding subsection of Section 86 seems to remain unmodified:
(emphases mine)

Here is section 165(d):
Therefore it would appear to me (a layman) that gambling losses, as deductions, would not be limited or capped under this new rule.

Looking forward to any confirmations or second opinions.

That would be nice.

Need the Russ Fox bat phone, he's great on this stuff.

I was thinking the same thing, but even RF says he is not a tax attorney, so even more would be helpful. Not only do we need the bat phone fired up, we may need Sweet Polly Purbred to belt out a song.

Russ Fox batsignal has been answered:

https://twitter.com/russcfox/status/...937&nid=27+236

Isn't this the same issue that most recreational players already face with the AMT?

Theoretically:
1. Right now my family almost hits the AMT.
2. I play $50K in SNGs (buyins), win $5K net.
3. 50K upfront goes on my adjusted gross income (AGI) pushing me above the AMT limit, killing my ability to deduct losses.
4. I pay more tax (~35% on 50K) than my winnings are worth, plus can't take standard deductions on house, child etc that I would normally get costing me even more.

If this is wrong I would really like to know because my accountant told me this is the case.

zero

Good stuff Russ, thanks

Gambling losses are fully deductible under the AMT. Thus, gambling should not cause you to pay more under the AMT.

-- Russ Fox

So cliffs on the fiscal cliff is nothing to fear?

^ +1...?

The point the op was making was that some itemized deductions will be limited for "high earners." That's definitely true, and this will impact gamblers for their non-gambling itemized deductions.

Consider a hypothetical amateur gambler who makes $250,000 from his day job, and also has $250,000 of gambling winnings and $200,000 of gambling losses. The gambling winnings will push him into the realm where itemized deductions are limited. He will get all his gambling losses ($200,000) as an itemized deduction, but other itemized deductions (i.e. mortgage interest, state income tax, property tax, etc.) will be 'phased out.'

Note that this only relates to federal income tax. Residents of the wrong states (some states do not allow gambling losses as an itemized deduction) have issues with their state income tax.

-- Russ Fox

Then it would be correct to say that any non-professional player whose Adjusted Gross Income gets kicked over the new thresholds ($250K Single, $275K Head of Household, $300K Married filing jointly, $150K Married filing separately) by the total of their winning poker sessions (gambling winnings) will pay more in income taxes due to phaseout of their personal exemptions and of their itemized deductions other than their total losing poker sessions (gambling losses) and certain other deductions (section 213 medical expense deductions, investment interest deduction and casualty and loss deductions), n'est pas?

Could you post the formula for the phaseouts?

Also, how will this interact with the AMT, which can already cause phaseouts of deductions for players?

Yeah, looks like it, and that seems like a potentially significant change depending on how fast the phaseouts are.

I'd be curious to see the schedule of the phaseouts if anybody stumbles upon it. It's something I want to incorporate into my poker tax planning resources alongside all of the other existing negative tax effects for amateur players.

here ya go

Thanks. I suppose that's not too bad... it's effectively a .03 * t surtax (where t is one's marginal tax rate) on gross poker winnings above the threshold including your other income, up to a maximum of D * t (where D are one's non-gambling deductions). So something on the order of 1% of gross for winnings above the threshold. Definitely significant for some types of players, but probably not life-changing.

A bit closer to 2% of gross for the first chunk, since you haven't factored in the phaseout of the personal exemptions.

Right, thanks. I think this is the first time those are being impacted by high poker AGI, at least on a broad scale.

http://www.bloodhorse.com/horse-raci...ing-deductions

In the game of life, the government is the ****ing rake.

Maybe the PPA could approach the NTRA to tack on tax reform for poker players as a related issue.

Interesting.

Almost all negative poker tax effects stem from the requirement for amateurs to report gross wins before deducting losses, and this would likely be the extent of attainable tax reform (year-to-year carryovers would be nice though). Really, most of the arguments as to why amateur poker players should be able to simply report net winnings, equivalent to treating an entire year as one session, apply just as well to all other sorts of amateur gamblers. The gambler who wins $100 and loses $100 at the track or at his favorite game of chance on alternating days for the entire year never had $18,200 of true, practical income, just as the similar poker player hasn't.

It has always seemed pretty clear that the horse gambling interests have much more political influence than poker interests. I agree that the PPA should be reaching out to the NTRA.

edit: Also worth noting that a hypothetical widespread distinction of poker as a game of skill doesn't solve the tax issue either, as most games of skill disallow deductions of losses as well. Unless poker is treated completely distinctly from both gambling and existing games of skill, proper poker tax reform has to happen along the gambling axis. Might as well work with other gambling interests.

I wish i needed a US accountant, how could you not hire one with a batphone?

FWIW the max Pease limitation is 80% of itemized deductions.

The rule is roughly (AGI -AGI Limit) * 3% for the limitation, however, the limitation can max out at 80% of itemized deductions.

So for example, if you have other ordinary income (wages) of 300,000 for the year and 150,000 of gambling, your AGI will be 450,000

Assume the following itemized deductions

Mtg Interest - 30,000
RE Taxes - 10,000
State taxes - 36,000
Charity - 1,500
Totals - 77,500

Gambling loss 100,000

In this case, the Maximum Pease limitation would be 20% of the 77,500 or 15,500.

Assuming the taxpayer is single, the income level is 250,000 so the base for the reduction is 450,000 (AGI) - 250,000 (level) for 200,000 of base at 3% for a limitation of 6,000.

At the 39.6% bracket, this limitation is costing you $2,376 in additional tax. Of course, this example does not take the AMT into account with the SALT and RE taxes, but was just an example.

Note: I am not your CPA and this cannot be used as written tax advice to avoid penalties.

^Well, at least the simple computations make it easy to figure out.