IRS Publication 525 — Taxable and Nontaxable Income

Lotteries and raffles. Winnings from lotteries and raffles are gambling winnings. In addition to cash winnings, you must include in your income the FMV of bonds, cars, houses, and other noncash prizes. However, the difference between the FMV and the cost of an oil and gas lease obtained from the government through a lottery isn’t includible in income.

Installment payments. Generally, if you win a state lottery prize payable in installments, you must include in your gross income the annual payments and any amounts you receive designated as interest on the unpaid installments. If you sell future lottery payments for a lump sum, you must report the amount you receive from the sale as ordinary income (on Schedule 1 (Form 1040), line 8b) in the year you receive it.

Form W -2G. You may have received a Form W-2G showing the amount of your gambling winnings and any tax taken out of them. Include the amount from box 1 on Schedule 1 (Form 1040), line 8b. Include the amount shown in box 4 on Form 1040 or 1040 -SR, line 25c, as federal income tax withheld.

Note: Engaging in gambling activities as a trade or business is considered self -employment. If you’re in the trade or business of gambling, use Schedule C (Form 1040). For tax years 2018 through 2025, professional gambling losses and expenses are limited to the amount of your winnings. This also means that a professional gambler cannot claim a loss on Schedule C (Form 1040) in a loss year, even if gambling expenses other than losses exceed gross gambling income. For additional assistance in determining if you must report self -employment income, please refer to Pub. 334. Gifts and inheritances. In most cases, property you receive as a gift, bequest, or inheritance isn’t included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that income is also taxable to you. If the gift, bequest, or inheritance is the income from the property, that income is taxable to you.

Inherited pension or IRA. If you inherited a pension or an IRA, you may have to include part of the inherited amount in your income. See Survivors and Beneficiaries in Pub. 575 if you inherited a pension. See What if You Inherit an IRA? in Pubs. 590 -A and 590 -B if you inherited an IRA.

Expected inheritance. If you sell an interest in an expected inheritance from a living person, include the entire amount you receive in Publication 525 (2025) 33