The incorrect statement about gambling winnings and losses is 'Gambling losses in excess of gambling winnings are not deductible.' While true that losses cannot exceed winnings, you can deduct losses up the amount of winnings, and not a loss beyond that.
The incorrect statement regarding gambling winnings and losses for recreational gamblers is: b. Gambling losses in excess of gambling winnings are not deductible. Here is why the other statements are correct:
- a. The excess of gambling winnings over gambling losses are included in gross income. This means that you can only deduct your losses to the extent of your winnings, and the net amount is taxable.
- c. Gambling winnings are included in gross income. Indeed, all gambling winnings must be reported as income on your tax return.
- d. Gambling losses must be deducted as an itemized deduction. You cannot take a standard deduction for gambling losses; they must be specifically itemized.
However, the IRS does not allow you to deduct more in gambling losses than you report in gambling winnings. So statement b is incorrect because it states that losses in excess of winnings are completely nondeductible, which could be misleading. While it is true that you cannot have a net deduction due to gambling losses, you can deduct losses up to the amount of your winnings.