Question

What adjustment(s) may need to be made on the California return when a taxpayer has California Lottery winnings and California Lottery losses?

Answer 1

Two main adjustments are commonly required:

1. Include the lottery winnings on the California return. California taxes lottery winnings (California-source winnings are taxable to nonresidents/part‑year residents as California source income), so any prize you reported federally must be reflected on your California return.

2. Add back California Lottery losses deducted on the federal return. California does not allow a deduction for losses from the California State Lottery, so if you claimed lottery/gambling losses on your federal Schedule A that include California Lottery losses, you must reverse that deduction on your California Schedule CA (i.e., add those losses back to income / disallow the itemized deduction on the CA return).

If you are a nonresident or part‑year resident, remember to allocate CA‑source winnings (and the disallowed CA lottery losses) to California when completing Schedule CA. If amounts are large or facts are complex, consider consulting a tax professional.