Thayer seeking restoration of gambling-loss deduction for Ky. horseplayers

LEXINGTON, Ky. – Damon Thayer, the Kentucky Senate majority leader, has asked for an amendment to be included in a tax bill currently moving through the state legislature so that Kentucky horseplayers would be able to deduct their gambling losses against their winnings, the legislator said Monday.

Thayer, who previously worked for the Breeders’ Cup and continues to have ties to the racing industry, said that he has asked Sen. Chris McDaniel, the chairman of the Senate Budget Committee, to amend a bill that makes changes to the state tax code to allow the deduction. The bill, which has already passed the House, was written to deal with “unintended consequences” of a bill last year that made significant changes to the tax code, including the provision that eliminated the gambling-loss deduction.

“I’ve asked him to look at it and clear it up,” Thayer said. “This was a surprise to me.”

The elimination of the state gambling-loss deduction was first reported on Sunday by the Blood-Horse.

Thayer said that the legislature was not deliberately seeking to eliminate the gambling-loss deduction with last year’s tax bill. Among a number of other changes, the bill eliminated deductions under Section 165 of the federal law, one of which is gambling losses. The federal tax code continues to allow filers to claim gambling losses up to the amount of gambling winnings.

The elimination of the gambling-loss deduction in Kentucky occurred just months after the IRS and Treasury Department changed federal reporting and withholding requirements for pari-mutuel winnings, a modification that has been highly beneficial to horseplayers. The changes, which went into effect in the fall of 2017, resulted in an 89 percent decline in the number of winning pari-mutuel tickets reported to the IRS for tax purposes in the 12 months after the changes went into effect, according to the National Thoroughbred Racing Association.

As a result of the Kentucky tax bill from last year, horseplayers with reportable gambling winnings will not be able to offset those winnings with their losses, as had been the case in years prior. In other words, if a horseplayer has $50,000 in reportable winnings but lost $60,000 during 2018, the taxable amount will be $50,000, rather than no net winnings in previous years. The winnings will be taxed at a 5 percent rate.

Horseplayers who did not receive any W-2Gs for gambling winnings in 2018 are unlikely to claim gambling winnings on their state and federal tax returns.

Asked if it would be possible to make the change retroactive to 2018 returns, Thayer said “it’s going to be difficult.”