Tax Law and the Horse Industry: Part VIII, At the Racetrack

This past August, a YouTube video of a horserace win went viral, making the winner, “Fancy Stripe,” an instant celebrity. After stumbling out of the starting gate at the El Paso’s Ruidoso Downs Racetrack & Casino, Fancy Stripe’s jockey Justin Shepherd fell off, but the young horse kept running – and won!

A little luck and a lot of determination worked for the horse, and often works for those who bet on them. In this post, we shift our focus to those who don’t necessarily ride or care for horses, but nonetheless have an interest in them – at the racetrack. Here are the basic rules on paying tax on horse racing bets.

Do you have to pay tax on horse racing winnings?

Yes, you do. The net gain of gambling winnings are fully taxable and must be reported as “other income” on your tax return. “Net gain” means the amount you won less the amount you wagered – for example, if you bet $100 on a horse and won $500, you must report $400, the amount you gained from the wager. If you lose $250 on a different race, you cannot simply reduce this amount from your $400 win—each and every bet must be separately tracked.

What is the new tax law for horse racing losses?

The new tax law, like the previous one, permits you to deduct your wagering losses to the extent of the gains you realized during the tax year. For taxpayers who itemize their deductions, these losses are fully deductible on Form 1040, Schedule A, Line 28, “Other Miscellaneous Deduction.” However, these horse racing tax deductions are limited to the extent of your winnings. In other words, your racetrack losses can negate your racetrack winnings, but cannot go so far as to show a gambling loss on your tax return.

The new law also clarifies that the term “wagering losses” not only includes the actual costs you incurred as a result of your wagers, but also other payments made in connection with your gambling, such as travel expenses to and from the racetrack, hotel bills, etc.

You’ll have to prove it!

Make sure to keep accurate and complete records of all your wins and losses throughout the year, and hold on to your losing tickets and receipts for other payments made. You should always be prepared to substantiate your gambling loss deductions, including proving to the IRS that any losing racetrack tickets are in fact your own. Auditors are suspicious of people who claim deductions for racetrack losses, particularly when they have footprints all over them!

Note that like many other deductions under the new tax law, the gambling loss provision is effective through the end of 2025.

San Francisco full-service tax firm

For over 30 years, the attorneys and accountants at Moskowitz, LLP have delivered the highest quality, non-judgmental representation and advice to thousands of U.S. taxpayers. To learn more about horse racing laws, the new horse racing tax rules, and how we can help you, contact our firm at (415) 394-7200.