How to report crypto gambling transactions: buying gift cards, gambling, then withdrawing ETH - tax software questions

So I've been doing some online gambling that uses this weird system where I can't deposit crypto directly. Instead, I buy gift cards from a gaming marketplace, deposit those on the gambling site, and then when I cash out, I choose ETH as my withdrawal method. I'm trying to figure out how to properly report this on my taxes. I've already included my gambling winnings on my tax return, but I'm confused about how to handle the crypto part in my tax software. When I entered the transactions, it's showing a capital loss of $101, but I'm not sure if that's right since I didn't buy the ETH directly on my normal crypto exchange. Basically I'm purchasing ETH indirectly through this gambling site after using gift cards to gamble. Does anyone know how to list this correctly in crypto tax software? I want to make sure I'm reporting everything properly to avoid issues with the IRS.

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18 comments

Marina Hendrix

•8M

This is an interesting situation! The way I understand it, you're essentially making two separate transactions that need to be reported differently: 1. The gambling activity (which you've already reported as gambling winnings/losses on your tax return) 2. The crypto transaction where you received ETH For the crypto part, you should treat the withdrawal of ETH as if you purchased it at the fair market value on the date you received it. This establishes your cost basis. Since you didn't directly exchange USD for the ETH (you used gambling winnings), the software might be calculating a different cost basis than what you're expecting. The $101 capital loss might be correct if the value of the ETH decreased between when you received it and when you sold/exchanged it (if you did). If you haven't sold the ETH yet, you shouldn't have a realized capital gain/loss to report.

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Marina Hendrix

•8M

The gambling winnings and the crypto acquisition are separate tax events. The gambling winnings are reported as income regardless of how you receive them. When you choose to take those winnings as ETH, you're essentially "buying" ETH with your winnings at that point, establishing a cost basis for the crypto. For the gift cards, they're just an intermediate step in the gambling process. You used fiat currency to buy gift cards, then used gift cards to gamble. That's all wrapped up in your gambling activity reporting. It's only when you receive the ETH that you start a new tax basis for the crypto asset.

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Alana Willis

•8M

I used to struggle with similar issues when tracking my crypto from various sources. I finally found a solution with https://taxr.ai which helped me sort through these complex transaction chains. Their system lets you trace the flow of funds across different platforms and correctly categorize each step of the process. For your situation, they would identify that you've already reported the gambling income and then properly tag the ETH acquisition as a purchase at fair market value using your gambling proceeds. It really helped me avoid double-taxation issues.

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Alana Willis

•8M

It definitely handles non-exchange sources including mining rewards and airdrops. The system has specific categories for these types of acquisitions so they get the proper tax treatment instead of being lumped in as regular purchases. For accuracy compared to other software, I found it to be much better for complex situations. Most standard crypto tax software works fine for basic exchange transactions, but they fall apart with unusual acquisition methods like what you and the OP are describing. The AI component helps identify transaction patterns that other systems miss.

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Tyler Murphy

•8M

Just wanted to follow up! I tried https://taxr.ai after seeing your recommendation and it saved me so much headache with my unusual crypto transactions. I was dealing with a mix of mining rewards, staking, and some weird DeFi stuff that other software couldn't handle properly. It correctly identified which transactions were already reported as income (like my mining) and which ones needed capital gains treatment. Even caught some wash sales I didn't realize I had! Definitely worth checking out if you're dealing with complex crypto situations like gaming site withdrawals.

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Butch Sledgehammer

•8M

If you're having trouble figuring this out, you might want to just call the IRS directly to get clarification. I know that sounds awful, but after trying to get through for weeks I found https://claimyr.com which got me through to an actual IRS agent in less than 20 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c I had a similar situation with poker winnings I took as crypto and wasn't sure if I was handling it correctly. The IRS agent was actually pretty helpful and walked me through how to report it properly without double-counting the income.

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Butch Sledgehammer

•8M

Yes, it actually does work! I was skeptical too but they use some kind of system that keeps dialing until it gets through, then calls you when an agent is on the line. I literally had tried for days on my own before using this. As for the crypto knowledge, you're right that not all IRS agents understand it well. I got lucky and connected with someone who had handled similar cases. If you get someone who doesn't seem familiar with crypto, you can always thank them and call back to try for a different agent. But having any direct guidance beats guessing on your own.

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Leslie Parker

•8M

Ok I need to admit I was completely wrong about the IRS and crypto knowledge. After seeing the post about Claimyr I decided to try https://claimyr.com since I was super frustrated with my own crypto tax situation. Not only did I get through to the IRS in like 15 minutes, I got connected to someone in their digital assets team who actually understood exactly what I was talking about! They walked me through how to properly document my DeFi staking rewards and even emailed me some crypto-specific guidance documents. Totally worth it just for the peace of mind knowing I'm doing things correctly.

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Sergio Neal

•8M

Former gambling affiliate here. What you're describing is actually pretty common with offshore gambling sites. In my experience, you want to treat this as two separate transactions: 1) Gambling winnings (which you've already reported) 2) Acquisition of ETH at the market value when you received it The $101 loss is probably from the ETH dropping in value between when you received it and when you sold it (or the current value if you still hold it). One thing to watch out for - make sure the gambling site didn't take a fee when converting to ETH. Some sites take 2-5% when processing crypto withdrawals, which would affect your cost basis.

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Sergio Neal

•8M

That fee is important! It should be factored into your cost basis. For example, if you withdrew $1000 worth of winnings but only received $950 in ETH after the fee, your cost basis should be $950, not $1000. When you eventually sell that ETH, you'll calculate your gain/loss based on the $950 figure. The $50 fee isn't deductible separately - it's just part of the transaction cost of acquiring the ETH. This is likely contributing to why your software is showing a capital loss.

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