If you’ve traded crypto in the past and taken some losses, don’t worry; you’re not alone. With the volatility of Bitcoin, Ethereum, and countless altcoins, plenty of taxpayers find themselves wondering: Can I claim my crypto losses on my taxes? The good news is that you can, under certain conditions.
Let’s walk through what counts as a loss, how it’s reported, and how you can use it to potentially lower your tax bill.
First: What Counts as a Loss?
For tax purposes, a crypto loss happens when you sell, trade, or dispose of your cryptocurrency for less than your cost basis (what you paid for it).
Common scenarios that create a tax-deductible loss:
- You sold Bitcoin for cash at a lower price than you bought it.
- You traded ETH for another token, and the ETH had declined in value since the purchase.
- You used crypto to buy something (like an NFT or a cup of coffee), and its value had dropped.
These are realized losses—meaning the transaction is complete, and the loss is locked in. Unrealized losses (just holding crypto that’s gone down in value) don’t count.
Where Do You Report Crypto Losses?
Crypto losses are treated as capital losses and reported on Form 8949 and Schedule D of your federal tax return.
Here’s a simplified flow:
- Form 8949: List each crypto transaction, with dates, proceeds, cost basis, and resulting gain or loss.
- Schedule D: Totals everything up and determines your overall capital gain or loss for the year.
Losses are broken down into short-term (held one year or less) and long-term (held more than one year). This distinction affects how your gains are taxed, but for losses, the treatment is largely the same.
How Do Losses Help You?
1. Offset Capital Gains
If you also had crypto gains—or gains from stocks, real estate, or other investments—you can use your losses to offset them, dollar-for-dollar.
2. Offset Ordinary Income (Up to $3,000)
If your losses exceed your gains, you can deduct up to $3,000 against your ordinary income (or $1,500 if married filing separately). Any leftover losses can be carried forward indefinitely.
Example:
- $5,000 in crypto losses
- $1,000 in stock gains
- ➡ Net loss of $4,000
- You can deduct $3,000 this year and carry the remaining $1,000 to next year.
What About Lost or Stolen Crypto?
This is where things get tricky. If you lost access to a wallet or were the victim of a hack, it usually doesn’t count as a tax-deductible loss under current IRS rules.
The Tax Cuts and Jobs Act (TCJA) suspended miscellaneous itemized deductions for personal casualty and theft losses from 2018 through at least 2025, and there is pending legislation in Congress to extend the suspension indefinitely. There are some narrow exceptions (like if the loss occurred in a federally declared disaster), but crypto theft generally isn’t deductible.
That said, if you’ve been scammed or hacked, it’s worth talking to a crypto-savvy CPA—there may be some case-by-case strategies worth exploring.
Final Thoughts
Crypto losses sting—but they’re not worthless. In fact, they can help reduce your tax burden today and in the future. The key is good recordkeeping, using a reputable tracking tool, and properly reporting your transactions.