A newly introduced bill in the North Carolina House of Representatives aims to modify state tax policy by allowing residents to deduct gambling losses from their taxable income.
House Bill 14, filed on January 30, proposes an amendment to G.S. 105-153.5(a)(2), a statute governing itemized deductions in North Carolina’s tax code.
The bill seeks to align North Carolina’s tax rules with existing federal provisions.
Under current federal law, taxpayers can deduct gambling losses under Section 165(d) of the Internal Revenue Code, but North Carolina does not currently provide a similar deduction at the state level.
If passed, House Bill 14 would allow taxpayers who itemise deductions to claim gambling losses, provided they do not exceed reported winnings.
This change would primarily impact individuals participating in legal gambling activities, including the North Carolina Lottery, casinos, and newly legalised online sports betting.
The proposed legislation clarifies that losses cannot be deducted beyond total gambling winnings, mirroring the federal framework and ensuring that individuals do not use gambling losses to offset other sources of income.
A bonus for bad beats
If enacted, House Bill 14 would be effective for taxable years beginning on or after 1 January of last year, allowing taxpayers to apply the deduction when filing their 2024 tax returns this year.
The measure could have several financial and economic implications for both taxpayers and state revenues. For taxpayers, the deduction would provide relief for individuals who experience significant gambling losses.
However, from a state revenue perspective, allowing such deductions could slightly reduce North Carolina’s tax base by decreasing overall taxable income.
Proponents of the bill argue that it introduces fairness into the tax system, ensuring that gamblers are not taxed on gross winnings while ignoring legitimate losses.
They point out that other states with legal gambling, such as Nevada, New Jersey, and Pennsylvania, allow gambling loss deductions at the state level.
Opponents, however, caution that the measure might inadvertently encourage excessive gambling. They argue that the deduction, while limited, could create the perception that gambling is a more financially viable activity.
According to them, this could potentially lead to higher gambling participation and associated social costs.
North Carolina continues shaping nascent gaming market
North Carolina has undergone significant gambling law reforms over the past three years.
In 2019, North Carolina expanded its gambling framework by legalising in-person sports betting.
The legislation allowed for wagers to be placed at tribal casinos, specifically at properties operated by the Eastern Band of Cherokee Indians and the Catawba Nation, which opened two years later.
This represented the first major expansion of legal gambling in the state since the establishment of the North Carolina Education Lottery in 2005.
Building on the success of in-person wagering, North Carolina lawmakers approved mobile sports betting in 2023. The new law permitted statewide online betting through licensed sportsbooks, creating opportunities for private operators to enter the market.
The bill included taxation provisions to ensure the state received a portion of gambling revenues. A percentage of proceeds was allocated to education funding, youth sports programs, and addiction treatment services.
The online betting market opened last year.
By last year, discussions around further gambling expansion intensified. Lawmakers debated the introduction of state-licensed commercial casinos, which would allow gaming facilities beyond tribal lands.
The proposals sparked significant controversy, with proponents emphasising economic growth, job creation, and increased state revenue, while opponents raised concerns over potential addiction risks, increased crime, and negative social impacts.
Additionally, regulation of video gaming terminals (VGTs) have been a topic of legislative interest, with some proposals aiming to legalise and tax them, while others sought stricter enforcement against illegal gambling operations.