Crypto Losses Not Deductible: What You Can and Can't Claim
When you lose money on cryptocurrency, it’s natural to assume you can write it off like you would with stocks. But the crypto losses not deductible, rules set by the IRS that treat crypto as property, not currency, meaning losses are only deductible under very specific conditions. Also known as capital losses on digital assets, these rules change how you report trades, airdrops, and even stolen coins. The truth? Most people who lose crypto don’t get any tax break—unless they actually sold it for less than they paid.
The IRS doesn’t let you deduct losses from things like abandoned wallets, exchange hacks, or scams unless you can prove the asset became worthless and you disposed of it. If your $10,000 in a token dropped to $50 and you never sold it, that’s a paper loss. The IRS sees it as unsold property—no deduction. But if you sold that same token for $50, now you have a capital loss, a realized loss from selling an asset for less than its purchase price, which can offset capital gains or up to $3,000 of ordinary income per year. Also known as tax-loss harvesting, this is the only legal way to turn crypto losses into tax savings. Same goes for lost private keys or forgotten passwords—unless you can show the asset was permanently inaccessible and worthless, it doesn’t count.
Even if you got scammed or your exchange went under, the IRS won’t accept that as a deductible loss unless you’ve completed a legal claim or received a formal write-off from a court. That’s why cases like FTX or Celsius don’t automatically qualify. You need documentation—bank records, wallet addresses, transaction IDs, even police reports. And even then, it’s not guaranteed. Meanwhile, crypto tax reporting, the process of tracking every trade, swap, and transfer to calculate gains and losses for IRS Form 8949 and Schedule D. Also known as crypto tax compliance, it’s the only way to avoid penalties when the IRS audits you. Many users skip this because it’s messy, but skipping it doesn’t make the problem go away.
What about airdrops or hard forks? If you received tokens you didn’t pay for and later sold them at a loss, you can deduct the loss—but only if you reported the airdrop as income when you got it. If you didn’t, you can’t claim the loss. It’s a two-step rule: report the gain first, then you can report the loss. Same with staking rewards—if you earned tokens and later sold them below their value at receipt, you can deduct the difference. But if you just held and lost value? No deduction.
So what’s left? You can still use crypto losses to offset crypto gains. If you made $15,000 in profits from selling Bitcoin and lost $8,000 on Ethereum, you only pay tax on $7,000. That’s the real power here—not writing off losses against your salary, but trimming your crypto tax bill. And if your losses exceed your gains, you can carry them forward to future years. That’s your safety net.
The posts below show real cases where people lost money—and what they could or couldn’t claim. You’ll find reviews of exchanges like BitTurk and NLexch where users lost funds, breakdowns of dead coins like Bitstar and PNDR that vanished overnight, and guides on how to track your transactions so you’re not left guessing when tax season hits. No fluff. No theory. Just what actually matters when your crypto portfolio takes a hit.
