Can you write off crypto losses on your taxes?

You bought in high, watched it drop, and now you're wondering whether the tax code hands you anything back for the pain. Sometimes it does. A crypto loss can cut what you owe. But the rules draw hard lines between a coin you sold at a loss, a coin that quietly went to zero, and a coin someone stole from you. Those three get treated very differently. A couple of them are genuinely unsettled right now, and anyone who tells you otherwise is guessing.

How a capital loss actually works

The IRS treats crypto as property, not currency. So when you sell it, swap it for another token, or spend it on something, that counts as a disposal, and a disposal is what creates a gain or a loss. The math is proceeds minus your cost basis, meaning what you paid plus fees. Sell for less than you paid and you have a capital loss, even if you never converted anything to dollars. Trading ETH for another coin at a lower value counts the same as selling.

How long you held sets the rate you're playing against. One year or less is short-term, taxed like ordinary income. More than a year is long-term, taxed at 0, 15, or 20 percent. Losses matter here because of the order they get applied:

• First, your losses cancel out gains of the same type (short against short, long against long), then across the two.
• If losses are left over, up to $3,000 comes off your ordinary income for the year ($1,500 if you're married filing separately).
• Anything still unused carries forward to future years, with no expiration. A big loss this year can shelter gains a decade from now.

One quirk works in your favor for the moment. The wash-sale rule stops stock investors from selling at a loss and instantly rebuying the same position, and right now it doesn't apply to crypto. You can sell a coin at a loss, buy it back an hour later, and still claim the loss. Congress has floated closing that gap for several years without passing anything, so treat it as a rule that could change, not one to build a permanent plan around.

A token that went to zero: did you actually lose anything?

This is where people trip. A coin sitting in your wallet at a fraction of a penny has not given you a deductible loss yet. On paper you're down, but the tax system only counts the loss when you dispose of the token. Until you sell it or otherwise get rid of it, there's nothing to report.

If the token still trades anywhere, the clean move is to sell it, even for a few dollars or to a burn address, which locks in the loss on your return. If it's truly dead with no market at all, you're into worthlessness or abandonment territory, and that's harder to support. You'd generally need to show the thing is completely worthless and that you walked away from it. For crypto specifically, that argument is shakier than a plain sale. Selling for a dollar almost always beats claiming a token was worthless.

Stolen, scammed, and rug-pulled crypto

This is the messiest corner, and the one people most want a yes on. The 2017 tax law suspended personal theft and casualty loss deductions from 2018 through 2025 unless the loss ties to a federally declared disaster. So if a hacker drains your wallet, a plain personal theft loss isn't deductible under that rule.

There's a separate lane, though. Losses on a transaction you entered into for profit fall under a different section of the code, and some tax pros use it to claim a theft loss when someone got scammed while trying to invest. The IRS Office of Chief Counsel put out advice in 2025 (memo 202511015) walking through when scam victims can and can't take that deduction. It turns on your intent going in and whether there's any reasonable prospect of getting the money back. This is fact-specific and actively disputed. If real money is on the line, have a professional look at your exact situation before you claim anything.

A rug pull usually splits the same way. If the token still trades, sell it and take a capital loss, no drama. If it's dead and you can show you were investing for profit, a loss argument may exist, though it's uncertain and depends on the facts. Pure Ponzi schemes have their own safe harbor, and it's narrow. It generally requires a lead figure who has actually been charged criminally, not just accused online.

Lost keys and money stuck in a bankrupt exchange

Lost your seed phrase, or sent coins to a wrong address? There's no buyer, no sale, and nobody stole it from you, so there's no clean disposal to point at. Most practitioners treat a lost-key loss as either non-deductible or too uncertain to claim. It feels brutally unfair after the fact, but the tax code doesn't have a good box for it.

An exchange freezing withdrawals or filing for bankruptcy is its own puzzle. The problem is timing. A loss generally isn't deductible until the amount is fixed and there's no reasonable prospect of recovery, and bankruptcies often return part of what customers were owed, sometimes years later. Writing off your full balance the day the exchange halts withdrawals is usually premature. In many cases you file a claim, wait for the process to set your recovery, and take the loss once the number is actually knowable.

What goes on your return

The digital-asset question sits near the top of Form 1040. Answer it straight: yes if you sold, swapped, spent, or earned crypto during the year. Your capital gains and losses go on Form 8949, and the totals flow to Schedule D.

There's a new form in the mix. Form 1099-DA is the digital-asset broker report. For 2025 activity, centralized exchanges send you (and the IRS) your gross proceeds, which you'll start seeing in early 2026. Cost-basis reporting phases in for transactions made in 2026 and later, so early forms may show what you sold for without showing what you paid. That gap is exactly why your own records still decide your real gain or loss. The separate DeFi broker rule that would have pulled in decentralized platforms was repealed in 2025, so those platforms generally won't be handing you a 1099-DA. Keep your transaction history regardless. When a form shows proceeds but no basis, your records are the only thing standing between you and tax on the full sale amount.