You May Be Able to Write Off Crypto Losses If You Sold
Crypto investors who sold crypto at a loss during a tax year can claim their losses on their tax return. Taxpayers are able to fully offset or reduce their investment gains. Some taxpayers may be able to write off up to $3,000 of ordinary income if they still have losses remaining. While remaining losses, above the $3,000 cannot be claimed in the same tax year, they can be carried forward to future years and claimed on future tax returns. Still, it’s important to remember that you had to have realized the loss for any of this to apply. This means you had to sell your crypto. Investors who did not sell and are holding crypto instead are generally not able to deduct the loss in value until they’ve sold the cryptocurrency. This is true even if you are holding crypto that has little to no value at this point.
Losses Due To Theft
There are also situations where losses due to theft can lead to a tax write-off. Specifically, if a crypto loss relates to a theft or a criminal activity by the organization they invested their money with, taxpayers may be able to take a deduction via theft loss.
For a theft loss to be available, however, legal action would have to be brought against the person or company who perpetrated the theft and other requirements must be met.
Similar to casualty losses, theft losses are no longer deductible on Form 4684 after the Tax Cuts and Jobs Act of 2017. If your cryptocurrency was stolen and classifies as a theft loss, it’s unlikely that you can write this off.
