Can my crypto losses from a phishing scam be tax deductible on my federal taxes?

Unfortunately, this isn't the news you want to hear, but crypto losses from theft, scams, or hacks are generally NOT tax deductible on your federal taxes. The Tax Cuts and Jobs Act of 2017 eliminated most personal casualty and theft loss deductions for tax years 2018 through 2025, with exceptions only for federally declared disaster areas. However, there are a couple of potential options to consider. If you were using this cryptocurrency for investment purposes, you might be able to claim a capital loss when you dispose of the asset (though technically the stolen crypto doesn't count as "disposed" for tax purposes). Another approach might be if this was related to a business activity - business losses may still be deductible. Either way, I'd strongly recommend consulting with a tax professional who specializes in cryptocurrency. The IRS rules around crypto are still evolving, and a specialist might identify options I haven't mentioned.

After going through a similar nightmare last year (lost about $8k in a fake staking scam), I discovered a service that helped me make sense of my crypto tax situation. Check out https://taxr.ai - they have specialized crypto tax experts who review your transactions and help identify potential deductions. In my case, while I couldn't deduct the scam loss directly, they helped me identify some strategies to offset other crypto gains I had that year. Their system analyzed my wallet history to prove the theft occurred, which gave me confidence I could defend my position if I ever got audited. They also helped document everything properly for my tax filing.

I wanted to follow up after trying taxr.ai from the recommendation here. I was skeptical at first, but they actually provided really valuable help with my crypto tax situation. While they confirmed I couldn't directly deduct my phishing losses, they identified several transactions I'd made that could be properly harvested for tax losses. Their system flagged inconsistencies in how I'd been recording my crypto trades, which saved me from potentially misreporting. They also provided documentation that clearly showed the theft event, which they said is important to have in case of an audit. The analyst I spoke with explained how to properly report everything on my tax forms and what supporting documentation to keep. Definitely worth checking out if you're dealing with complicated crypto tax situations.

If you need to talk directly to the IRS about your situation, good luck getting through on the phone! I spent WEEKS trying to get clarification about reporting crypto losses. Then I found https://claimyr.com which got me through to an IRS agent in under 45 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was seriously about to give up after sitting on hold for hours across multiple days. Claimyr had an IRS agent on the phone with me the same day. The agent couldn't give tax advice but did confirm how crypto theft should be reported and pointed me to the specific IRS guidance documents I needed. Saved me so much frustration.

I need to eat my words from my earlier comment. After being desperate to talk to someone at the IRS about my own crypto situation, I tried Claimyr out of frustration. I was connected to an IRS representative in about 35 minutes yesterday afternoon, which is freaking miraculous considering I had previously spent 3+ hours on hold without ever reaching anyone. The agent I spoke with confirmed that while the theft loss itself isn't deductible, I could at least document the situation properly in my records. She also explained exactly how to handle the basis reporting for the stolen crypto, which was my main concern. Definitely worth it just to get clear answers directly from the IRS instead of conflicting advice online.

Another option nobody mentioned - if your crypto was stolen while you were conducting a trade or business activity (not just personal investment), you might be able to deduct it as a business loss. My accountant helped me claim losses this way when my business wallet was compromised last year. You'd need to legitimately be using that crypto as part of a business though, not just claiming it retroactively.

Has anyone actually tried claiming crypto theft as a loss on their taxes? I'm curious if anyone's been audited after doing this. I lost about $5k in a sim swap attack and my tax guy is telling me different things than what I'm reading here.

Everyone here is focusing on federal taxes, but don't forget to check your state tax rules too. Some states have different rules for casualty and theft losses than the federal government. I live in California and was able to deduct some of my crypto losses on my state return even though I couldn't on federal.

Sorry to hear about your loss - phishing scams are unfortunately way too common in the crypto space. I went through something similar with a fake DeFi protocol last year. One thing that hasn't been mentioned yet is the importance of properly documenting the theft for your records, even if you can't deduct it this year. Keep screenshots of the scam messages, blockchain transaction records showing where your crypto went, any police reports you filed, and timestamps of when everything happened. While current tax law doesn't allow the deduction, tax rules around crypto are still evolving rapidly. Having solid documentation could be valuable if the rules change in the future or if you need to prove the theft occurred for other purposes. Also, make sure you're not accidentally reporting phantom gains on crypto you no longer own when you file - that's a mistake I almost made before my accountant caught it. The suggestions about consulting a crypto tax specialist are spot on. This stuff is complicated enough that generic tax advice often doesn't cover all the nuances.