NOTE: CoinTracker's tax experts have written a guide on cryptocurrency tax write-offs for US users here. We recommend consulting this guide first.
How do I handle stolen or lost cryptocurrency?
For U.S. users, the Tax Cuts and Jobs Act of 2017 significantly altered the handling of lost or stolen property for tax purposes. Since January 1, 2018, deductions for lost or stolen property are no longer permissible. If you need to categorize a coin as lost or stolen in your records, you can:
- Edit the category of an existing 'Send' transaction to "Lost".
- Create a manual 'Send' transaction and change category to "Lost".
How can I write off a loss of a cryptocurrency coin?
Writing off a cryptocurrency that has become completely worthless (not just lost significant value) involves creating a capital loss equal to the cost basis of the asset.
If the coin is completely illiquid, and you have no way of disposing of it, you can try to take the position that it should still be considered for a worthless asset deduction. This is a grey area of the tax code so continue at your own risk.
Here are the options:
- Sell or send the asset to a third-party address to trigger a full capital loss. This will be automatically registered if the coin is from a synced wallet or exchange.
- If the coin is illiquid and cannot be disposed of, you can manually create a 'Send' transaction and then edit the proceeds from the transaction to USD 0.00. This position must be carefully documented with evidence that all reasonable methods to dispose of the asset were exhausted but proved unfeasible.
Note on Uncommon Tax Write-Offs
It's important to be cautious with less common write-offs such as nonbusiness bad debt, casualty losses, theft losses, worthless security deductions, and abandonment losses. These can significantly increase your risk of an IRS audit. Even if these deductions are filed correctly, the IRS may still scrutinize them because they deviate from typical returns. The potential costs associated with audits might exceed the benefits of these deductions.
Read more about write-offs in this guide and always consult with a tax adviser to evaluate the pros and cons before proceeding with these types of deductions.
How do I manage spam tokens, unwanted airdrops, or crypto dust?
While removing spam tokens, unwanted airdrops, or crypto dust entirely from your account is not possible, there are methods to exclude them from your tax calculations:
- For spam tokens and airdrops: How to Manage Spam Tokens
- For crypto dust, you can opt to "ignore" the transaction: How to Ignore a Transaction