Ok,
This is what I did. I followed the instructions for the gambling section. I entered the amount of the prize I won, and the amount of money I lost gambling, and things worked out OK.
I tried to follow the instructions for the Miscellaneous Income section and that's where I ran into issues. The screens I get don't seem to follow the order for what you indicated in your post.
So I entered the 1099-Misc data as I received it including the positive amount of the prize, then on the next screen it tells you to enter the reason for the 1099-Misc. I typed in Prize Winnings. The next page asked, "Does one of these uncommon situations apply?" I chose "This was prize winnings". A couple of screens later it let me put in an adjustment to the value of the prize I won. On this page I put the negative value of what I entered on the 1099-Misc page.
Is that the correct way to do it, or will that give me problems?
