While crypto thefts and scams are prevalent, only some of these losses are tax-deductible since the 2017 Tax Cuts and Jobs Act was enacted. In this article, we will go over whether your cryptocurrency losses can be reported as a tax loss, whether is be from the crypto being lost, stolen, or from a scam or rug pull event.
Can You Deduct Lost Crypto?
You might have lost your tokens by sending them to the wrong wallet address or have lost keys/access to your wallets. Such kinds of losses are usually referred to as casualty losses. A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.
Up until 2017 casualty losses were deductible. Later the rule was changed, and now from 2018 to 2025 casualty losses are deductible only if the losses are attributable to a federally declared disaster, which isn't likely to affect your crypto. Thus, crypto casualty losses are not tax deductible as capital losses.
Can You Deduct Stolen Crypto?
Cryptocurrencies are digital assets making them prone to theft. Some examples of stolen crypto include:
Loss of the coins due to wallet or exchange hacks
Malware attacks compromising the access of funds
Stolen hardware that stores the funds
Unfortunately, unlike a stolen credit card or bank account, there’s no way to easily and quickly recover the funds. You cannot deduct losses due to crypto theft on your tax return. The 2017 Tax Cuts and Jobs Act repeals deductions for theft losses, therefore you cannot claim these losses on your tax return. This is similar to the repeal of deductions for casualty losses. Read on to see scenarios in which theft losses from rug pulls and scams can be tax deductible.
Can You Deduct Stolen Crypto From Rug Pulls and Scams?
Unlike theft or casualty losses, crypto scams fall under the purview of investment losses, making them tax-deductible. For the tax years 2018 to 2025, individual taxpayers with theft losses are allowed a deduction if the loss is due to theft related to a transaction entered into for profit. This typically includes crypto scam situations, when an investor loses money because a crypto token or NFT turned out to be fraudulent or even non-existent.
In this case of crypto/NFT scams, there are two different scenarios. The first is if the asset still has liquidity and is being traded. In this case, you can only claim a loss when you dispose of the asset, which will capture the loss you have incurred. In the second scenario, the asset is not being traded and there is no market for it. In this case, you may be able to claim an unrealized loss on the token or NFT, as there is no possibility of return of capital on your investment. In this situation you can create a Manual Sell transaction within ZenLedger, with the USD value being $0.01. This will capture the full loss.
Notes:
It is always our recommendation to consult with your tax professional if you are unsure of how to deal with lost, stolen, or scam tokens in your crypto and NFT investing history.
It is important to keep good records of the loss of your coins for tax purposes.
You can manually mark your token as seen in the video below, or if you need to add the transaction for the lost token you can do so by adding it as a Manual Transaction.
For information on how to handle crypto lost due to an exchange shutdown, please check out our Exchange Shutdown article.
Video Walk-Through to Mark a Transaction as Lost or Stolen: