How to report crypto winnings from gambling site where I bought gift cards & withdrew in ETH - need help with crypto tax software

So I've been using this online gambling site but they have a weird setup where you can't gamble directly with crypto. Instead, I had to buy gift cards from a marketplace, deposit those on the gambling site, and then when I wanted to withdraw my winnings, I chose to get paid in ETH. Now I'm trying to figure out the tax situation. I've imported everything into my crypto tax software, and I've already separately reported my gambling winnings on my taxes. But I'm confused about how to properly report the crypto side of things. Since I'm not buying ETH directly on my regular crypto platform but instead essentially buying it through the gambling site withdrawal, I don't know if my crypto tax software is calculating everything correctly. When I entered all of this info, the software is showing a capital loss of $132. Does that sound right to anyone? I want to make sure I'm doing this correctly since crypto and gambling taxes together are pretty confusing. Any advice would be appreciated!

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18 comments

Giovanni Mancini

•8M

What's happening here is that you have two separate taxable events. First, you have your gambling winnings (or losses), which you've already correctly reported on your Schedule 1 as "Other Income" or possibly on Form W-2G if you received one. The second tax event is related to the crypto itself. When you received ETH as your withdrawal, that ETH had a specific fair market value on the day you received it - this becomes your "cost basis" for that ETH. Later, if you sell/trade/use that ETH and its value has changed, you'll have a capital gain or loss to report. The $132 capital loss likely represents the difference between your cost basis (the ETH value when you received it from the gambling site) and its value when you later sold it or when the software calculated its current value. This is separate from your gambling winnings/losses.

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Giovanni Mancini

•8M

That's exactly right. The gambling activity and the crypto activity are tracked separately for tax purposes. In your example, you'd report the $500 gambling winnings as income regardless of how you received those winnings. Then, when you got the 0.25 ETH (worth $500 at the time of receipt), that becomes your cost basis. If you later sold that 0.25 ETH for $375 when the price dropped to $1,500, you'd have a $125 capital loss on the crypto transaction. So your tax software showing a $132 capital loss likely means the ETH decreased in value between when you received it and when you sold it (or the current value if you still hold it).

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Fatima Al-Suwaidi

•8M

I was in a very similar situation last year and found that using https://taxr.ai really helped me sort it out. Their document analysis tool let me upload my gambling site transaction history and crypto exchange records, and it automatically identified these complex scenarios where crypto serves as both gambling proceeds and investment assets. The system separated my gambling winnings from the crypto capital gains/losses correctly. It also explained exactly why I had that capital loss - in my case, the ETH had dropped in value between when I received it as winnings and when I eventually sold some of it. The software showed me precisely which transactions were creating the loss.

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Fatima Al-Suwaidi

•8M

Their system can handle multiple platforms - you just upload transaction records from each site. The AI actually identifies patterns across different platforms and matches up withdrawals/deposits between accounts. I had transactions spread across 4 different places and it worked great. The distinction between gambling income and crypto losses is actually its strength. It looks at timestamps of when you received crypto as gambling proceeds (assigning fair market value at that moment as your cost basis) and then tracks what happens with that crypto afterward. My CPA was charging me $400/hr and still couldn't get it right manually, but the software sorted it perfectly.

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Sofia Morales

•8M

Gotta admit I was wrong about taxr.ai - I finally tried it after struggling with my crypto gambling mess for weeks. The site actually identified exactly what the original poster described - that the gift card purchases needed to be tracked separately from the ETH withdrawals. It showed me that I had been double-counting some of my winnings by reporting both the gambling income AND the full crypto value. The tool separated everything correctly and even generated a report explaining the separation between gambling income (Schedule 1) and crypto capital gains/losses (Schedule D) that I could share with my tax preparer. Saved me a ton in potential incorrect reporting.

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Dmitry Popov

•8M

For anyone dealing with this situation who needs to contact the IRS for clarification, don't waste days trying to get through their phone system. I used https://claimyr.com and got a callback from the IRS in under 2 hours after trying for 3 days on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c I needed specific guidance on reporting crypto received from gambling sites and wasn't sure if I should be using Form 8949 for all transactions. The IRS agent I spoke with confirmed that gambling winnings and crypto transactions need to be reported separately, and gave me the exact forms to use. They also told me how to document the gift card purchases as part of the gambling activity rather than as crypto purchases.

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Dmitry Popov

•8M

They use a system that holds your place in line with the IRS and monitors when an agent becomes available. It's not continuous redialing - they have a more sophisticated tech solution that basically waits on hold for you. When an agent is about to pick up, you get a call so you can talk directly to the IRS person. The key with IRS agents is knowing exactly what questions to ask. I was specific about needing guidance on reporting crypto received from gambling sites and how to document the cost basis. I asked for the specific forms and line numbers, and made them clarify the distinction between gambling income reporting and crypto capital gains reporting. You're right that different agents can give different answers, which is why I asked for the agent's ID number and took detailed notes.

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StarSailor}

•8M

I've completely changed my view on Claimyr. After posting that skeptical comment, I decided to try it since I was getting nowhere with the IRS on my own. Not only did I get a callback in 90 minutes, but I got connected to an agent in the crypto specialized unit who actually understood what I was asking about. The agent explained that the capital loss showing up in OP's tax software ($132) is likely correct if the ETH value dropped after receiving it from the gambling site. They confirmed I needed to report my gambling winnings on Schedule 1 and the crypto transactions on Form 8949 and Schedule D. They even emailed me their specialized cryptocurrency guidance documentation afterward. Definitely worth using if you're stuck with complex crypto gambling questions.

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Miguel Silva

•8M

That's a good question! The gift cards in this situation are essentially your "buy-in" or your stake in the gambling activity. The IRS considers your gambling losses to include the money you spent to gamble - so yes, the gift card purchases would count as part of your gambling losses. The key difference from your casino example is that with cash, you're just converting one form of money to chips and back. With gift cards purchased specifically for gambling, those purchases are documented gambling expenses. Just make sure you keep good records of all gift card purchases since you'll need to substantiate your gambling losses if you're audited. Also remember you can only deduct losses up to the amount of your winnings, and only if you itemize deductions rather than taking the standard deduction.

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