What documentation is required to deduct gambling losses when reporting lottery income?
Executive summary
Tax law lets taxpayers deduct gambling losses only if they itemize and keep contemporaneous, supporting records; the IRS explicitly requires an “accurate diary or similar record” plus receipts, tickets, statements or other corroborating documents to substantiate lottery and other wagering losses [1]. Recent 2026 changes cap deductible losses at 90% of losses relative to winnings, which heightens the importance of meticulous documentation for anyone reporting lottery income [2] [3].
1. What the IRS says: itemize and document to deduct losses
The Internal Revenue Service states plainly that gambling losses are deductible only if the taxpayer itemizes on Schedule A (Form 1040) and “kept a record of your winnings and losses,” and it instructs taxpayers to maintain an “accurate diary or similar record” and be prepared to provide “receipts, tickets, statements, or other records” showing the amounts of both winnings and losses [1].
2. The practical recordkeeping the IRS expects
In practice the IRS expects a contemporaneous log that notes dates, types of gambling (for example lottery), amounts won and lost, locations, and often the identities of others present or the purpose of transactions; that log should be backed up by objective documents such as W-2G forms for reportable wins, lottery tickets, casino or betting statements, bank or ATM withdrawal slips linked to gambling activity and receipts—because the agency has long emphasized corroboration beyond a taxpayer’s memory [1] [4].
3. W-2G and other formal reporting documents matter
When lotteries or other payors report winnings, taxpayers receive forms like the W-2G or similar statements that both establish gross winnings and trigger reporting obligations; those forms become key corroboration when offsetting losses on Schedule A because the deduction cannot exceed the amount of reported winnings [1] [3].
4. Why documentation matters more after the 2026 rule change
Starting in tax year 2026, federal law limits deductible gambling losses to 90% of documented losses against winnings, meaning even well-documented break‑even years can produce “phantom income” tax exposure; that statutory cap makes precise substantiation critical because taxpayers can no longer simply net all losses dollar‑for‑dollar against winnings without proof [2] [3].
5. Common recordkeeping recommendations reported by tax professionals
Advisors and tax commentators advise maintaining a contemporaneous logbook (dates, amounts, location, type of wager), saving all winning tickets and W-2Gs, keeping bank and withdrawal records tied to gambling, and securing casino or lottery statements to corroborate entries—steps repeatedly highlighted in guidance and industry write-ups as the front line of defense in audits or when claiming deductions [4] [3].
6. Disputes, industry pushback and limits of available reporting
Industry groups and some lawmakers are pushing to restore a full 100% deductibility or to soften the new threshold, arguing the 90% cap creates unfair “phantom income,” which reveals a political and economic agenda behind recent changes; reporting consistently notes those lobbying efforts but documentation requirements remain from the IRS side regardless of ongoing legislative debates [5] [6].
7. Bottom line for someone reporting lottery income
To deduct lottery losses against lottery winnings, the taxpayer must itemize on Schedule A, keep an accurate, contemporaneous log of wins and losses, retain all supporting documents such as tickets, W-2G forms, receipts and bank statements to corroborate entries, and be mindful that beginning in 2026 the deductible amount will be limited to 90% of documented losses relative to winnings—so recordkeeping is not just bureaucratic but material to tax outcome [1] [2] [4].