How to handle lost, stolen, or worthless cryptocurrency

This article applies to US customers only.

For US customers, the Tax Cuts and Jobs Act (TCJA) of 2017 limited the ability to deduct personal losses. Since January 1, 2018, you can't deduct most cryptocurrency-related casualty (lost) or theft losses unless they meet specific criteria.

To learn more about these deductions and other crypto write-off options, see CoinTracker's tax experts' guide on cryptocurrency tax write-offs for US customers. We recommend reviewing this guide first.

How CoinTracker handles lost or stolen transactions

Important: CoinTracker doesn't automatically categorize or calculate losses for stolen, illiquid, or worthless cryptocurrency. If you tag a transaction as lost or stolen, your transaction history updates, but CoinTracker won't adjust your taxable income or calculate tax implications for you.

Lost or stolen transactions appear on the Taxes page under Other transactions. These assets remain part of your reported holdings and may still count toward your taxable income. To see how these transactions are being recorded, check your tax forms.

For tax advice, consult a tax professional.

Categorize a transaction as lost or stolen

There are two ways to mark a transaction in your records as lost or stolen.

Edit the category of an existing transaction

1. Go to the Transactions page in CoinTracker.
2. Find the transaction you want to categorize.
3. Select the [...] icon > Edit transaction.
4. Change the category to Lost.
5. Select Save transaction to finish.

For the full edit flow, see how to edit a transaction.

Add a Send transaction and change its category

If the transaction isn't already in CoinTracker, add it manually:

1. Follow the steps to manually add a transaction, selecting Send as the transaction type.
2. On the edit transaction page, change the category to Lost.
3. Select Save transaction to finish.

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 can still attempt a worthless asset deduction. This is a grey area of the tax code, so proceed cautiously.

You have two options:

• Sell or send the asset to a third-party address to trigger a full capital loss. CoinTracker automatically registers this transaction if the coin comes 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 to $0.00. 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. See our full disclaimer.