Lost or Stolen Crypto — Can You Deduct It?

Before 2018, you could generally deduct losses from theft on your federal tax return, which meant stolen crypto was potentially deductible — but the Tax Cuts and Jobs Act changed that.

From 2018 through at least 2025, personal casualty and theft loss deductions are only allowed if the loss was caused by a federally declared disaster, which cryptocurrency theft almost never qualifies as.

This means if your hardware wallet was hacked, you were scammed in a rug pull, or your exchange went under, you generally can't deduct the loss on your federal return under current law.

Crypto that's simply lost — because you forgot your seed phrase or sent it to the wrong address — is even harder to deduct, because the IRS requires an "identifiable event" to establish that the loss is permanent and complete.

The one possible exception is if the loss is connected to a trade or business rather than personal investment activity, or if the theft loss qualifies as a "Ponzi scheme" loss under specific IRS safe-harbor rules — both situations worth discussing with a tax professional.