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Tax treatment of cost of single ticket for multiple drawings?

What is the tax treatment of a lottery season ticket or any other lottery/raffle ticket where a one-time payment enters you in a set of periodic drawings that spans the end of a calendar year?

Specifically, what happens when you buy the ticket in year N but win a prize in year N+1?

In this particular case, in 2012 the taxpayer bought a $100 raffle ticket that entered her in a school's monthly drawing. In January 2013 she won that month's drawing and won $500. Also, winning does not remove you from the pool

-- it is possible to win multiple drawings.

Obviously, the $500 gets reported on the 2013 return, but what about the $100 paid to enter?

I assume that (for individual taxpayers) the usual cash-basis rules apply and the $100 (i.e. "gambling losses" itemized deduction) gets reported on the 2012 return or not at all. And thus if there were no gambling winnings in 2012, the deduction is completely lost.

Is this correct, or is there any apportionment provision when a one-time entry cost covers multiple drawings (i.e. if the ticket enters you in 10 drawings, can you treat it as 10 $10 tickets, each purchased the day of each drawing)?

Reply to
Rich Carreiro
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I'm still a little unsure if a raffle ticket drawing is a prize 1099-Misc box 3, or is wagering income?

If a prize, its net payout, namely the payout less the cost, is a line 21 item and is not reduced by Schedule A gambling losses.

If so, it would seem the time between the prize award and the purchase does not matter.

If it is gambling income Form W-2G, then gambling losses for that year only would count.

I think I asked here a long time ago why a poker player's Bad Beat Pot income is a prize (1099) and not gambling winnings, and still do not really understand.

(A Bad Beat in some casinos, is where you hold a really good hand, say Three Aces & two jacks or better, and get beat by another player. The casino allows players to contribute a small amount, say $1, to every pot, and after taking a cut for the casino, the casino shows everyone how much the pot stands at right now. If a player suffers a bad beat, that player loses the poker hand but collects the bad beat pot and receives a 1099-Misc box 3 form, as the bad beat pot is deemed to be a prize and not a wager.)

Reply to
Arthur Kamlet

On the two occasions when I won a raffle, a 1099-Misc was issued and it does get netted regardless of the between purchase and receipt of award.

My apologies for not having seen this question long ago or maybe I did and didn't know the answer.

First, I have played poker in casinos offering Bad Beat payouts and wasnever asked to contribute to the Bad Beat pot.

Second, the Bad Beat payout is a consolation prize.

Dick

Reply to
Dick Adams

how do they draw the line between "a really good hand" which can be awarded the prize, and a "pretty darn good hand" which can not be awarded the prize?

Reply to
Pico Rico

That's established by the casino, but typically it's being beat while holding three Aces plus two jacks, or better.

Reply to
Arthur Kamlet

This might be a rare case where "cost recovery" accounting would be permitted. That is, the cost would be applied against winnings (if any) on a FIFO basis until fully exhausted. On the losing side, I believe the cost would be deferred until the LAST drawing you are entitled to enter because the loss isn't fixed until that time.

I don't see any problem with this straddling a year end because the terms of the bet clearly establish an entitlement to win in more than one year.

MTW

Reply to
MTW

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