Tax Prophet: FAQ October 6, 1996

Frequently Asked Tax Questions -- October 6, 1996

This column, in slightly different format, originally appeared in The San Francisco Examiner Newspaper, Sunday October 6, 1996

Gambling and Game Show Winnings, Avoiding Sales Tax on Mobile Homes; Ownership of Real Property


Note: This exercise is for educational purposes only and is not intended to be legal or tax advice. Your particular facts and circumstances must be considered when applying the U.S. tax law. You should always consult with a competent tax professional with respect to your particular situation.

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  1. Question: In a recent audit, the IRS examiner stated that my gambling winnings from slot machines were taxable. Am I entitled to deduct my gambling losses from my winnings?


  2. Question:I recently won big on "Wheel of Fortune." May I deduct the full cost of my travel, meals and lodging which totaled $1,500 for myself and my family?


  3. Question: I hear it's better to buy a mobile home outside of California, then remain outside the state for at least 90 days before driving it back here, to avoid California sales tax.


  4. Question:Recently, you said that to determine title to property, look at the deed. What exactly should I look for?


  1. Answer to Question #1:

    Yes, when you itemize your deductions, you are entitled to deduct your gambling losses but only to the extent of your winnings. Taxable gains from wagering activities can be reduced by losses, irrespective of whether the underlying transaction was legal. Wagering activities include: keno, slot machines, table games, bingo, horse and dog racing, and lotteries. Married couples can combine their winnings and losses when they file a joint return. The casino's computer printout is sufficient evidence of your gambling winnings and losses.

    For professional gamblers, losses are allowed when computing adjusted gross income. Consequently, a professional gambler does not have to itemize deductions to deduct gambling losses. The Supreme Court ruled that a professional gambler is someone who gambles full-time for a livelihood.


  2. Answer to Question #2:

    No, TV game show contestants are not engaged in wagering activities and cannot fully deduct these expenses. In a recent Tax Court case, a taxpayer claimed these expenditures were akin to gambling losses which should off-set his gambling winnings. The IRS contended the expenses were either nondeductible personal expenses or miscellaneous itemized deductions that may only be deducted if they exceed 2% of the taxpayer's adjusted gross income. For example, if a taxpayer's adjusted gross income was $100,000, he could deduct these expenditures to the extent they exceeded $2,000, provided he itemized his tax deductions.

    The Tax Court held that, at best, the expenses were miscellaneous itemized expenses subject to the 2% "floor" (minimum) rather than gambling losses. The court rejected the taxpayer's contention that the expenses were tantamount to a wager or bet, noting the expenditures were incurred for specific goods and services, such as transportation, meals and lodging. The court also expressed doubt that Congress intended to permit casual gamblers a gambling loss deduction for these types of expenditures.


  3. Answer to Question #3:

    True. California does not collect a "use tax" (the equivalent of a sales tax) on the purchase of a vehicle, including a mobile home, made outside the state, provided the vehicle is used outside the state for at least 90 days after the purchase.


  4. Answer to Question #4:

    A presumption under California law is that husbands and wives hold property as community property. Therefore, if your deed says, "John and Jane Smith," "John and Jane Smith, husband and wife," or "John and Jane Smith, as community property" the presumption is community property. If, however, the deed says, "John Smith, as his separate property," the presumption is separate property. Likewise, if the deed says, "John and Jane Smith as joint tenants," the presumption is that the property is held as joint tenants. These presumptions, however, can be reversed by a written agreement between the parties. For estate tax purposes, the IRS usually places a heavy emphasis on the title as it appears on the deed. To play it safe, use a new deed to change title, rather than rely on any written agreement.



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**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained at this site.**