Potential Changes to Gambling Loss Deductions in North Carolina
Overview of Gambling Loss Deductions in North Carolina
Sports betting enthusiasts in North Carolina may soon see new regulations allowing them to deduct gambling losses from their taxes. These changes are part of a state budget proposal that is awaiting approval from both legislative chambers before being signed into law by Governor Josh Stein.
Retroactive Implementation and Reporting Changes
The proposed rule would take effect retroactively from January 1, 2025, marking a significant shift as North Carolina currently is one of ten states that do not permit gambling loss deductions. Additionally, sportsbooks would be required to report winnings exceeding $2,000 annually for each customer.
Winning $2,000 or more at a single sportsbook would result in the issuance of a W-2G tax form, aligning with new federal regulations that limit gambling tax deductions to 90%. At the federal level, receiving a W-2G form is triggered by wins of at least $600 on bets with odds of 300-to-1 or higher.
All bettors who receive a W-2G form must report their gambling income and losses to the IRS, but compliance among recreational gamblers is typically low. For North Carolina players who meet the $2,000 threshold, reporting these winnings on tax forms will become mandatory.
Increased Taxes on Sportsbooks and Prediction Markets
The budget also suggests raising the tax rate on sportsbook operators’ revenue from 18% to 23%. This hike is likely to affect bettors through less favorable odds and may prompt some to turn to unregulated platforms.
Moreover, a new 6% tax on prediction market platforms is proposed. Other states, including Kentucky, Illinois, Iowa, and New Jersey, are considering or have introduced similar taxes on prediction markets, some of which have faced legal challenges.
Revenue Sharing with Universities
The new rules propose that universities such as the University of North Carolina-Chapel Hill and NC State receive a portion of the tax revenue generated by sports betting. This could amount to as much as $5.8 million annually. These institutions have previously been excluded from tax revenue distributions but may soon benefit under revised allocation plans, which could also aid Appalachian State, Charlotte, and East Carolina universities.
The first $4.5 million collected will be allocated to cover research costs, gambling addiction treatment and education, and youth sports initiatives.
Additional Legislative Measures
Lawmakers are also working on funding a $1.7 billion baseball stadium and addressing tax loopholes affecting data centers, hospitals, and affordable housing developers as part of the broader budget considerations.
