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Crypto scam tax deduction

The tax implications of crypto scams depend on profit motive: whether the money went in to earn a return. We build the crypto scam tax deduction claim, with the evidence behind it, and file it with the return.

Is stolen crypto tax deductible?

Investment scams and phishing.
Yes, when the money was sent or held to earn a return. In a 2025 Chief Counsel memo, the IRS allowed theft losses for victims with a profit motive, including compromised account, pig butchering and phishing scams. We claim it as a stolen crypto tax deduction under Section 165.
Romance and extortion scams.
No, with two exceptions: a personal theft loss offsets personal casualty gains, and a loss tied to a federally declared disaster (from 2026, a state declared disaster too) is deductible. A romance scam that led to a fake investment can qualify as an investment theft loss.
Year of discovery.
You claim the loss for the tax year you discovered the theft. You leave out any amount you can reasonably expect to recover, as the IRS sets out in the Form 4684 instructions.

Which crypto loss deduction applies

Answer two questions to find the deduction on a US individual return

  1. Was the crypto taken by fraud, a scam or a hack?

    QUESTION 1
  2. Was the money sent to invest or trade?

    Yes
  3. Was the crypto sold or swapped?

    No the price fell

Theft loss

Deducted in the year the theft is discovered, less any amount still expected back, on Form 4684, Section B

Yes

Personal theft loss

Deductible only against personal casualty gains, or for a federal or (from 2026) state declared disaster

No romance or extortion, no investment

Capital loss

Offsets gains, then up to $3,000 of other income a year; the rest carries forward

Yes

No deduction

A drop in value counts only after a sale or swap; an abandoned token gives no deduction

No still held or abandoned

Crypto theft loss vs capital loss

Theft lossCapital loss
Loss$80,000 sent to a fake trading platform$80,000 lost selling coins below cost
Deducted this year$80,000, with no $3,000 cap$3,000 against other income
Carried forwardNone needed$77,000 to later years
AssumesSingle filer who itemizes, income above the loss, no recovery expected. The loss is the money paid in, not the balance the platform showed.Single filer with no capital gains that year

Reporting cryptocurrency scams on tax forms

We build each crypto scam loss tax deduction around the theft, the profit motive and the year of discovery.

  • Evidence of the theft.

    For a stolen crypto tax write off, we trace the money from the bank to the platform wallet. Our forensic accounting team works line by line when records are thin.

  • Form 4684, Section B.

    We report the crypto scam tax write off on Form 4684, Section B, for income-producing property.

  • Profit motive and recovery.

    We document why you expected an investment return and track each recovery claim.

What to send for a crypto scam tax deduction

  • Money trail.

    Bank wires, card charges and exchange deposit records that show where the money went.

  • Platform records.

    Screenshots of the platform balance, the wallet addresses and the transaction hashes.

  • Proof of the scam.

    Messages with the scammer and any report filed with the police or the FBI Internet Crime Complaint Center (IC3).

Can I write off crypto losses?

Yes, once the crypto is sold or swapped. The IRS treats digital assets as property, so you report a crypto tax loss when you sell below cost and use it against capital gains first.

In a 2023 Chief Counsel memo, the IRS refused a loss on a token that had fallen in value but still traded. You cannot deduct an abandoned token either, since Congress made the suspension of miscellaneous itemized deductions permanent.

For crypto tax loss harvesting, our cryptocurrency tax services team times sales of positions below cost for a year with large gains to offset.

  • $3,000

    The IRS lets a filer deduct up to $3,000 of net capital loss from other income each year ($1,500 married filing separately) and carry the rest forward.

Smooth, professional, great. George's crypto expertise was impressive!

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Cost of a crypto loss claim

We price the claim on the number of wallets, exchanges and transactions behind it, and quote a fixed fee before work starts.

When we need to trace the money, our forensic team quotes that work separately, for each year of activity reviewed.

The lightest claim is one platform, one year, with the transfer records in hand. These are the factors, not a quote.

Send the exchange records and transfer history, and a CPA confirms whether a crypto scam tax deduction applies before anything is filed.