A client hands you a W-2G from a slot jackpot, a 1099-C from a settled credit card, and a Schedule K-1 from a real-estate partnership. Each item carries its own inclusion rule, its own exclusion path, and its own form.
Casual gamblers report gross winnings on Schedule 1 line 8b. Losses go on Schedule A line 16 (not subject to the 2% floor), capped at winnings reported. Netting at the session level on the return is not permitted. Most casual gamblers who take the standard deduction get no benefit from losses.
A payer issues Form W-2G at $1,200 (bingo, slots), $1,500 (keno, net of wager), $5,000 (poker tournament, net of buy-in), or $600 and at least 300 times the wager for other games. Regular 24% withholding applies above $5,000; backup 24% if no TIN provided.
A session log is the documentation standard: date, type of wager, location, companions, amounts won and lost per session. Bank statements and casino win/loss reports support the log.
Common mistakes
- Netting gambling losses against winnings on Schedule 1 instead of reporting gross winnings on line 8b with losses confined to Schedule A line 16, capped at winnings.
- Excluding 1099-C income for insolvency without filing Form 982; the IRS assesses the full amount when the election is not made.
- Treating nonrecourse foreclosure as producing separate COD income; the full canceled debt is the amount realized, with no separate cancellation income.
Bottom line
- Gambling: gross winnings on Schedule 1 line 8b; losses only on Schedule A line 16, capped at winnings (W-2G at $1,200 slot/bingo, $1,500 keno, $5,000 poker, or $600 and 300× wager)
- COD: 1099-C taxable unless excluded by bankruptcy, insolvency (extent of), qualified principal residence (through 2025), or qualified farm/real-property business; claim on Form 982
- Foreign: FEIE $130,000 (Form 2555); FTC with 1-back/10-forward (Form 1116); Form 3520 for foreign gifts over $100,000; Form 5471 for 10%+ ownership of a foreign corporation
- Constructive dividends: corporate-paid personal expenses, below-market shareholder loans, and reclassified excess compensation are taxed to the shareholder
Exam shortcut
Recourse vs nonrecourse foreclosure. Recourse splits two ways: gain or loss on property (FMV minus basis) plus COD income (debt minus FMV). Nonrecourse collapses to one: amount realized equals full canceled debt, no COD income. Loss-stack mnemonic: BAP. Basis, At-risk, Passive. Apply in that order to every K-1 loss before it reaches Schedule E. W-2G thresholds: 1, 1, 5, plus 600 and 300×.
The full lesson (about 2,519 words, 17 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
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