Tax plan would affect few bettors

The federal tax reform plan released on Thursday by Republicans contains a change to tax law that could limit the number of deductions used by a small number of horse players and other gamblers to offset or eliminate their gambling winnings, according to officials who have analyzed the plan.

The change pertains to the ability of gamblers to deduct their losses and other expenses against their gambling winnings. Under the change, gamblers who take deductions apart from using losses to offset the winnings would be limited to using the total amount of the deductions to offset their winnings, instead of using the combined deductions to post a loss for the year.

The reform plan initially set off alarms among some in the racing industry because at first glance it appeared to disallow any use of gambling losses to offset winnings, a change that would have impacted many horse players. But upon closer inspection, the language instead appeared to impact only a small subset of gamblers that have used business deductions as well, according to Alex Waldrop, the chief executive of the National Thoroughbred Racing Association, which lobbies the federal government on tax issues affecting parimutuel wagering and the horse industry.

“There’s no reason why someone who has legitimate business deductions shouldn’t be able to take those, so we will continue to fight that,” Waldrop said on Thursday shortly after the plan was released.

Many horse players use losses to offset their gambling winnings each year in order to avoid paying all or part of the taxes on the winnings. The ability to offset losses has become far easier for horse players since the advent of accountwagering operations, which maintain detailed gambling records for players. That practice would continue to be allowed under the change, Waldrop said, citing the NTRA’s tax experts.

The reform plan was negotiated by a few Republican legislators behind closed doors, and it is expected to undergo a vast number of changes before being swiftly marked up next week. Republicans have stated they intend to fast-track the legislation in order to score a legislative victory, which could lead to unexpected outcomes among the many small changes contained in the plan.

The reform plan was released five weeks after tax changes highly beneficial to horse players went into effect. Those changes allow players to use the entire amount wagered in the pool for the purposes of determining reporting or withholding thresholds, rather than the base amount of the wager.