Prior to 2021, Michigan was one of the few remaining states that did not allow recreational gamblers to deduct gambling losses on the state level (this includes losses related to poker, slot machines, sports betting, table games, etc.). While professional gamblers were able to deduct their gambling losses on Schedule C, as it is considered a business-related expense, recreational taxpayers were penalized and assessed tax on their gross winnings, without regard to their losses.
At the end of 2021, Michigan passed Public Act 168, which created a deduction for gambling losses incurred by recreational gamblers. The new deduction set forth in PA 168 follows federal guidelines for gambling losses. Recreational gamblers can now deduct losses to the extent of their winnings, but winnings cannot be reduced below zero to produce a loss. If you have no winnings, then you are not eligible to deduct any losses. This also applies to nonresidents on any gambling losses incurred located in Michigan.
The only caveat? Taxpayers must itemize their deductions in order to recognize these losses as a deduction. If you took the standard deduction on your federal return, then you will not be eligible to deduct your gambling losses on either return.
Although Public Act 168 was passed at the end of the year, it is retroactive to January 1, 2021. If you already filed for the 2021 tax year, it is worth reviewing your return to see if this impacts your state tax. If so, there is still plenty of time to file an amended return to reduce your total tax. If you have not filed your 2021 return, make sure these gambling losses are being deducted on the state level before you submit your return.
