Are Gambling Losses Tax-Deductible in the State of Michigan?

Are Gambling Losses Tax-Deductible in the State of Michigan?
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Can you deduct gambling losses from your tax return in Michigan? Yes, you can. Thanks to a bill signed by Governor Gretchen Whitmer in December 2021, gamblers in the Great Lake State can make tax deductions based on their profits and losses from Michigan online casino apps and live venues. 

The amendment to Michigan’s Income Tax Act of 1967 was ushered in by Senate Bill 764. That bill made it through a series of necessary votes and landed on Gov. Whitmer’s desk late last year. Her signature made it legally binding and, as Senator Curtis Hertel said, it fixed a “weird loophole” in the old legislation. 

 

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Hertel authored the bill and was instrumental in getting it through the state’s political system. His assertion is that no one should pay tax on money they never had. Under the previous system, a gambler had to pay tax on their gross winnings. 

For example, if they won $5,000 but accrued losses totaling $6,000, they’d still be taxed on the $5,000 win, even though they actually ended the year with a -$1,000 balance. All that’s now changed thanks to Hertel’s bill.

“It really is just a matter of fairness, where if you didn’t win money, you shouldn’t have to pay taxes on it,” Hertel concluded.

The signing of Senate Bill 764 means that gambling losses can be deducted from a Michigan tax return. This brings the state’s tax laws in line with other parts of the US and, moreover, federal laws.

How Can I Deduct Losses from My Tax Return?

Michigan’s gambling tax law is retroactive, which means it applies to any losses incurred from January 2021 onwards. However, making tax deductions isn’t a simple matter of noting down all of your losses. 

The deductions only apply to gambling profits. For example, let’s say you have $2,000 in recorded wins at Golden Nugget Casino Michigan but $3,000 in recorded losses. The maximum deduction you can make is $2,000. To put it another way, you can’t deduct $2,000 from your gambling wins and use the remaining $1,000 to offset other forms of income. Gambling losses only apply to your gambling activities.

 

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So, to clarify, the deductions are only applicable up to your total profit. Using the above example, your tax calculation would look like this:

  • Gross Income = $2,000
  • Total Loss = $3,000
  • Net Profit = -$1,000
  • You Maximum Deduction = $2,000
  • Calculation: $2,000 - $2,000 = $0 taxable income

So, based on the above, you wouldn’t have any gambling profit and, therefore, don’t owe any tax. The excess $1,000 just gets written off. It disappears into the ether. This clears up any confusion regarding the idea that gamblers in Michigan are being given a tax break. 

Losses aren’t being refunded. A gambler can only write off losses up to the amount they’ve won. Gamblers will also have to itemize their losses to prove they’re legit. However, the calculation has been simplified compared to what it was. Moreover, gamblers aren’t being forced to pay tax on their gross winnings if they’ve actually ended the year with a net loss. 

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