Can Non-Residents Deduct Gambling Losses in the U.S.?

On this page

1. The short answer depends on where you live
2. The default rule for most non-residents
3. The same-session exception
4. When a treaty exempts the winnings outright
5. Why Canadian residents are treated differently
6. Side by side: three kinds of non-resident
7. Limits that still apply to Canadians
8. What a refund claim can rest on
9. Frequently Asked Questions

You won at a U.S. casino, the cage paid you by hand, and 30% was withheld under the U.S. rule for non-residents. On the same trip you also lost money. Can you count those losses against the win? The answer turns on your country of residence. Most non-residents cannot, apart from losses within the same session. Canadian residents can, through the tax treaty between Canada and the U.S., and some limits still apply. This article explains who can count losses and what a refund claim can rest on.

The short answer depends on where you live

IRS Tax Topic 419 covers gambling income and losses. For a non-resident alien, U.S. gambling winnings are income “not effectively connected” with a U.S. trade or business, and a visitor’s casino winnings fall into that group. The rule sets a flat 30% tax on that income, which is why casinos usually withhold when a win is paid by hand.

What happens to losses depends on where the winner lives for tax purposes. The tax treaty between Canada and the U.S. has a provision that lets a resident of Canada deduct U.S. gambling losses against U.S. gambling winnings, to the same extent a U.S. resident could. It is a residency rule, so it follows where the person lives, not their passport. The deduction has limits, and later sections set them out. The treaty mechanics are explained in how the treaty treats gambling losses.

Non-residents of other countries generally cannot deduct gambling losses. Their U.S. winnings are taxed on the gross amount, so a losing evening at another machine or a losing day earlier in the trip does not reduce what is taxed. The IRS instructions allow one narrow exception for losses inside the same gambling session, covered below. Some treaties exempt gambling winnings outright. For residents of those countries the winnings are not taxed, and the loss question does not come up at all.

The default rule for most non-residents

Casino winnings paid to a visitor are U.S.-source income that is not connected with a U.S. trade or business. That income is taxed on a gross basis. The rule applies a flat rate to the full amount received, with no deductions taken against it. For a non-resident who has no treaty provision exempting the winnings or allowing a loss deduction, the whole win is the figure the tax is worked out on.

Here is how that plays out. Suppose a non-resident hits a $5,000 slot jackpot on Friday, then loses $3,000 at other machines over the weekend. Under the default rule, the tax is worked out on the full $5,000. The $3,000 lost on separate play does not lower the amount taxed. The loss does not count simply because the money is gone. The tax follows the gross winnings, whatever happened before or after.

Because the casino withheld at the same 30% rate when it paid out, the tax owed in this situation often matches what was already taken at the cage. The default rule does have one narrow exception for losses inside the same gambling session, which the IRS instructions describe separately.

The same-session exception

The IRS instructions leave one narrow opening for a non-resident who is not a resident of Canada. Losses can offset winnings, but only winnings from the same gambling session. The winnings from a session are measured as the net result of that session’s play. If a player puts money into a machine and then hits a jackpot during that same stretch of play, the amount lost earlier in that session can reduce the winnings figure that is taxed.

The offset stops at the edge of the session. Losses from a separate session cannot be netted against a withheld win, even at the same casino. The same goes for losses from an earlier day of the trip, from play at a different casino, or from a losing night on a previous visit. Each session stands on its own. A session that ends in a loss has no taxable winnings, and that loss does not carry over to reduce a later session where tax was withheld.

The timing of withholding explains why this matters. When a win is paid by hand, the casino usually withholds tax at the 30% rate the rule sets, based on the payout. It does not look at what was lost earlier in the session. The casino later reports the total on Form 1042-S. Any same-session netting is handled on the return itself.

Because the netting happens on the return, it depends on records that tie the losses to the session of the win. That means times, the machine or table, and the amounts put in and taken out. The IRS decides whether those records support the figure reported. The kinds of records that usually hold up are covered in what counts as a casino win-loss record.

When a treaty exempts the winnings outright

Some U.S. income tax treaties go further than Canada’s. Instead of allowing losses as a deduction, they exempt a resident’s U.S. gambling winnings from U.S. federal income tax altogether. For a treaty-exempt person, the winnings are reported at a 0% rate instead of the 30% rate.

Because the rate on those winnings is zero, the tax on them is zero before losses come into it. There is nothing left for a loss to reduce. The question that matters to every other non-resident, whether losses can be deducted at all, does not arise for this person. No loss figure is needed on the return. Records still matter, though, because they support the amount won and tie the winnings to the person claiming the exemption.

The exemption rests on the wording of the specific treaty and on the person being a resident of that country under the treaty’s own terms. Casinos often withhold 30% anyway when a win is paid by hand. That amount appears on Form 1042-S, and the return asks the IRS to give it back. The IRS decides the claim. The treaties themselves are covered in which countries’ treaties exempt gambling winnings.

Why Canadian residents are treated differently

The difference comes from one paragraph of the Canada-U.S. income tax treaty. Article XXII(3) was added by the Third Protocol, signed in 1995. It does not exempt a Canadian resident’s U.S. gambling winnings from U.S. tax. It changes how the taxable amount is figured. Under the treaty, the United States allows a Canadian resident to deduct losses from wagering transactions to the same extent that a U.S. resident could deduct them. The winnings stay taxable. The amount taxed can be smaller.

“To the same extent as a U.S. resident” is the working phrase. It ties the Canadian deduction to the U.S. domestic rules for wagering losses. Whatever limits apply to a U.S. resident also apply to the Canadian, including the rules on which losses count and what records support them. Without the treaty, a non-resident pays the flat rate on gross winnings. With it, a Canadian resident is taxed on winnings reduced by allowable losses. The paragraph gets its own walk-through in what Article XXII(3) allows.

On the U.S. return, a Canadian resident reports the gross U.S. gambling winnings and the treaty loss deduction separately. The deduction is not an itemized deduction. The return also states the country of residence, which is how the IRS sees that the treaty applies. The withheld tax shown on Form 1042-S is then measured against the tax on the net figure.

Side by side: three kinds of non-resident

For a non-resident with no treaty relief, income is taxed at the 30% rate the rule sets, on the gross amount of the winnings. The IRS instructions allow a loss to reduce a win only when both came from the same gambling session, so that netting happens before the tax is worked out. A resident of a country whose treaty exempts the winnings pays no tax on them, so losses play no part in the calculation.

A Canadian resident is the only one of the three whose losses from other sessions and other days can be counted. The losses claimed cannot be more than the U.S. winnings reported, and for tax years beginning after 2025 the amended rule allows only 90% of wagering losses as a deduction. How the treaty produces that result is set out in the Article XXII(3) guide linked earlier.

Limits that still apply to Canadians

The treaty deduction under Article XXII(3) has edges. It covers only losses from wagering in the United States. Losses at a casino in Ontario, at a lottery kiosk in Quebec or on a gaming site outside the U.S. do not count. The losses that do qualify can be deducted only up to the U.S. gambling winnings reported.

A net gambling loss is not deductible. If a Canadian resident’s U.S. losses for the year are larger than the U.S. winnings, the deduction stops at the amount of those winnings. The extra loss does not reduce any other income. It also does not create a refund on its own. The deduction can only reduce tax on winnings that were reported, and the tax that can come back is limited to what was withheld on them.

Some winnings never count at all. Under IRC 871(j), winnings a non-resident alien makes at blackjack, baccarat, craps, roulette and the big-6 wheel are not taxed, so they are left off the non-resident return. Because those winnings are not reported, they do not add to the winnings that losses are measured against. A large blackjack session, for example, does not raise the ceiling for the loss deduction. Why table games aren’t withheld like slots covers this in more detail.

For tax years beginning after 2025, IRC 165(d) as amended allows only 90% of wagering losses as a deduction. For a 2026 or later year, the deduction is figured from 90% of the qualifying U.S. losses. That result is still capped at the U.S. winnings. Returns for tax years that began before 2026 follow the earlier rule. The tax year on the Form 1042-S tells you which version applies.

What a refund claim can rest on

The loss deduction exists only for a resident of Canada, so the claim starts with residency. The return asks for the country of which the filer was a citizen or national and the country of tax residence during the year. A Canadian claim states Canada. The IRS reads that answer together with the address on the return and the Form 1042-S. If residency is unclear or inconsistent across those documents, the loss deduction has no footing.

The losses themselves need records. The IRS standard is an accurate diary or similar log kept as you play, plus receipts, tickets or statements that back it up. A casino win-loss statement is common support, but it reflects only rated play on a player’s card. What counts as a casino record covers which documents carry weight.

U.S. Tax Recovery is an IRS Certifying Acceptance Agent, listed on the IRS’s Acceptance Agents directory for Canada. That credential lets the company certify identity documents for an ITIN application, so original passports do not have to be mailed. The company prepares and files the U.S. return and gathers the supporting records. It is not affiliated with the IRS. The IRS reviews the claim and decides the outcome, and it sets the pace, which varies from case to case. The documents checklist lists what a file usually contains.

Frequently Asked Questions