A friend is thrilled by the news that sports gambling should soon be legal in his state. He looks forward to the day betting on sports will be convenient, regulated, safe -- that he can walk up to a counter, place a bet, and know that if he wins, he'll get paid.

And that if he loses, he can deduct those losses on his personal income tax return.

Um, no.

Until May 14, the only state where bettors could legally gamble on professional and college sports was Las Vegas. (Of course I'm talking legal sports betting -- Americans illegally wager an estimated $150 billion a year on sports.)

Now that the Supreme Court has struck down the Professional and Amateur Sports Betting Act, as many as twenty-two states or more are expected to legalize betting within the next few years. (Delaware goes full-scale next week.)

Regardless of how you feel about gambling, an expanded gaming industry will definitely generate significant economic impact. The American Gaming Association estimates legal sports betting will generate up to $26 billion in economic activity, add approximately 152,000 jobs that will pay over $7 billion in wages, and increase tax revenues to federal, state, local and tribal sovereign governments by as much as $5 billion. 

Where will much of that tax revenue come from? People like my friend. 

Just like other forms of income, gambling winnings are taxable. (That's why, if you win over a certain amount at the track, you're required to fill out Form W2-G and a portion of your winnings get withheld, just like payroll withholding.)

Gambling winnings are taxable as ordinary income. Gambling losses are deductible, but only if you itemize deductions on your tax return. (Since only approximately 10% of American taxpayers itemize, that automatically eliminates millions of people.)

And here's the thing: Gambling losses are only deductible up to the amount of winnings that you report. So if at the end of the year you're down $3,000... you don't get to deduct that $3,000 from your income.

Say you bet twice: You win $100 on the NCAA basketball tournament and lose $200 on the World Series. You can offset your $100 in winnings, but you can't deduct your $100 net loss.

But if win $100 on the NCAA tournament and $200 on the World Series, you will have to declare all $300 as income.

As my CPA friend Bill Zumwalt says, for the IRS that makes it "the perfect heads I win, tails I don't lose proposition."

Net that out and legalized sports betting will be more convenient -- both for you as a gambler and also for the IRS.

State treasures generally use federal adjusted gross income or taxable income for their own calculations; that means they'll automatically take a slice of your winnings. Some state and local governments may decide to impose taxes directly on gambling activities.

And then there's one more potential slice that may be taken from the gambling pie. Leagues like the NBA and the NFL hope to collect a fee of 1% on the total amount bet as compensation for the use of their "intellectual property rights." (Think statistics, official injury reports, etc. Of course that's information they already provide; now they just want to get paid for it.)

So: Will legalized sports gambling be more convenient? Absolutely. Will it generate significant economic impact? Definitely.

Just not to your personal income tax returns.