For U.S. customers, the Tax Cuts and Jobs Act (TCJA) of 2017 limited the ability to deduct personal losses. Since January 1, 2018, most cryptocurrency-related losses, categorized as “casualty” (lost) or “theft losses” (stolen property), are not deductible unless they meet specific criteria.
To learn more about these deductions and other crypto write-off options, CoinTracker's tax experts have created a guide on cryptocurrency tax write-offs for U.S. customers. We recommend reviewing this guide first.
Note on lost or stolen transactions
CoinTracker does not automatically categorize or calculate losses for stolen, illiquid, or worthless cryptocurrency. If you categorize a transaction as lost or stolen, your transaction history will be updated, but it will not adjust your taxable income or calculate any tax implications.
Lost or stolen transactions will appear on the Taxes page under Other transactions. These assets will still be part of your reported holdings and may remain included in your taxable income. To see how these transactions are being recorded, check your tax forms. For tax advice, please consult a tax professional.
Categorizing lost or stolen cryptocurrency
If you need to categorize a transaction as lost or stolen in your records, you can:
- Edit the category of the transaction from Send to Lost.
- Add a Send transaction and change the category to Lost.
How to write off a cryptocurrency loss
Writing off a cryptocurrency that has become completely worthless (not just lost significant value) creates a capital loss equal to the crypto’s cost basis.
If the crypto is illiquid and cannot be disposed of, you still attempt a worthless asset deduction. This is a grey area of the tax code, so proceed cautiously.
Here are the options:
- Sell or send the asset to a third-party address to trigger a full capital loss. This is automatically registered if the coin is from a synced wallet or exchange. (This option only works if the asset is valued at zero and the transaction is properly synced with a wallet or exchange.)
- If the crypto is illiquid and cannot be disposed of, create a 'Send' transaction and edit the proceeds from the transaction to $0.00. Be sure to document this action with evidence that all attempts to dispose of the crypto were exhausted but proved unfeasible.
Uncommon tax write-off considerations
Be cautious with less common write-offs, such as nonbusiness bad debt, casualty losses, theft losses, worthless security deductions, and abandonment losses. These deductions can increase the risk of an IRS audit. Even if filed correctly, the IRS may scrutinize them due to their deviation from typical returns. The potential costs of an audit may outweigh the benefits of these deductions.
Disclaimer: CoinTracker is provided for informational purposes and is not intended as tax, audit, accounting, investment, financial, or legal advice. For financial, tax, or legal advice, please consult your own professional. Please see our full disclaimer.