Can I Claim Losses Or My Hacked Cryptocurrency

Can You Deduct Lost or Stolen Crypto on Your Taxes?

IRS Guidance on Cryptocurrency Losses

For tax purposes, cryptocurrency is treated as property, and taxpayers can claim capital losses on stolen or hacked crypto assets. However, the tax treatment of crypto losses varies depending on the specific circumstances and the region you reside in.

Special Considerations for US Taxpayers

Losses from Hacks, Scams, or Theft

In the US, losses from crypto hacks, scams, or thefts are not deductible as capital losses under Section 165(c). The IRS considers such losses as non-deductible personal theft losses, which were eliminated under the Tax Cuts and Jobs Act of 2017.

Losses from Worthless Assets

Taxpayers may be able to claim a worthless stock deduction under Section 165(g) if their digital assets are lost, hacked, or never returned by a bankrupt crypto entity. This deduction applies to assets that have become worthless due to an identifiable event, such as a bankruptcy or theft.

Considerations for Investors Outside the US

In other regions, the tax treatment of crypto losses may differ. Some jurisdictions may allow taxpayers to claim capital losses on stolen or hacked crypto assets, while others may have specific rules and requirements for claiming such losses.

Capital Gains and Losses

To claim a capital loss on cryptocurrency, you must first realize the loss. This means selling or disposing of the crypto asset. Capital losses can offset capital gains and reduce your overall tax liability.

Short-Term and Long-Term Losses

The holding period of your crypto asset determines whether the loss is considered short-term or long-term. Short-term losses are generally taxed at your ordinary income tax rate, while long-term losses are taxed at the lower capital gains tax rate.

Excluding Crypto from Calculations

If you lose crypto due to a hack or scam, you can choose to exclude it from your tax calculations. This means you will not have to pay taxes on the crypto's value, but you also cannot claim the loss as a deduction.

Conclusion

The tax implications of lost or stolen cryptocurrency vary depending on the jurisdiction and the circumstances of the loss. It is important to consult with a tax professional to determine the best approach for your specific situation.

Disclaimer: This article is for informational purposes only and should not be considered legal or tax advice.