Daily Fantasy Sports (DFS) losses

[sull88]

Hi. I have a question on Daily Fantasy Sports (DFS) losses. I have about $10K in losses this year from DraftKings and Fanduel combined. Unfortunately this will not be a winning year, so no profits. I do not rely on DFS for income and believe in the eyes of the IRS this is considered a hobby? I also believe (maybe incorrectly) that I can claim that $10K in losses. My questions are: is that thinking correct? Do I itemize all of my deposits on Schedule A to show the total loss? Or is there an easier way? Or should I simply NOT include the loss on my taxes at all? Thanks for your help. Living in CT btw.

[AnnaB]

These losses would be considered gambling losses.  You can only deduct gambling losses if you have gambling winnings.  Since you only have losses, these would not have an impact on your tax return this year.

Had you received a Form W-2G from a casino with $10k in winnings, then you could offset it with your losses as an itemized deduction.

If your state does not consider these activities gambling, and instead a game of "skill", then you would be in a hobby situation.  Unfortunately, the scenario is more or less the same.

You can only deduct hobby expenses up to the amount of hobby income. 

[sull88]

Thank you, Anna. Here is where it's a somewhat strange area. DFS is not considered gambling in Connecticut, rather a game of "skill". That is questionable, of course, and many states are deeming it gambling by the nature of the laws on the books. So what should I do if it is not considered gambling? Same result?

[AnnaB]

If you choose not to consider it gambling and instead consider it a hobby - then you have the same rules.  You can only deduct up to the amount of your hobby income. So, yes, same result either way.

[sull88]

Okay. Thank you both. I appreciate the quick answers.

[TaxGuyBill]

The difference is that hobby expenses are subject to the 2% limitation.  Gambling losses are not.

Unfortunately, there is no clear answer which one is correct.  If I remember correctly, by the old IRS definition, it is gambling.  However, the actual Law Code, NOT in the Tax Code, says that Fantasy Sports is NOT gambling FOR INTERNET GAMBLING PURPOSES.

There has not been a clear ruling on this, but I would probably go with Gambling because that uses the IRS definition AND it results in a better tax outcome.  🙂

[cniehaus1]

Let's say I had approximately $5000 in DFS winnings on Draft Kings and received a 1099-misc. And say I also had losses of $1000 on FanDuel DFS, over $6000 in casino slots/tables, and $500 in online horse betting.  My question is, can I off set the entire gain with my losses and not pay taxes on my gain since I lost more? Or can I only use my losses as a deduction and really only get partial relief of the tax owed? Or am I unable to count any of my losses and owe taxes on the full $5000 gain?