While crypto taxes are already complex, it’s even murkier for FTX, Celsius, and BlockFi customers. There are different ways these situations can be treated, depending on the facts of the case. This is a topic we ultimate say is for the individual taxpayer and their tax preparer to discuss and decide how to handle, as at this time there is not a clear way given by the IRS to go with it.

Many tax professionals argue that in the case you lose access to your crypto permanently due to exchange bankruptcy, you can write off the value of your lost crypto as an ‘investment loss’ and deem the assets worthless. By doing so, you are relinquishing your rights to claim the assets in the future. Investment losses can offset your capital gains and up to $3,000 of ordinary income for the year. Additional losses can be rolled forward into future tax years. This should only be done when the loss is certain. In order to go this route in ZenLedger, you would need to create a manual sell transaction at a $0 USD value for the cryptocurrency you lost. See our Create Manual Transaction article for information on how to manually add a transaction.

With regards to a shutdown like FTX, if you have received reimbursements from the platform, we recommend dividing up those reimbursements into trades for the assets that you received (eg, BTC or ETH) at the date of the exchange closing. For example, if you received 1 bitcoin and previously held 4 assets, you can make four trades of each of the assets into 0.25 Bitcoin at the time of the exchange closing. Another option is to treat cryptocurrency lost to exchange bankruptcy as a casualty loss. However, these types of losses are considered non-deductible after the Tax Cuts & Jobs Act of 2017.

For more information on how you can label these transaction in ZenLedger, check out our Lost/Stolen Crypto article.