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How do I handle lost crypto due to an exchange shutdown?
How do I handle lost crypto due to an exchange shutdown?

Learn how to handle permanently lost crypto on exchanges like FTX, Celsius, and BlockFi that went bankrupt,

Megan McIntire avatar
Written by Megan McIntire
Updated over a week ago

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 foer 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, given that FTX investors don’t currently know whether they will receive their investment back, or to what extent, it’s unclear what portion of their investment is completely and permanently ‘lost’. You should consult a crypto tax professional with questions on the specifics of your situation. 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.

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