Crypto stolen from wallet - do I still have to report BTC capital gains to IRS?

This is a tough situation, but you do have some options. When cryptocurrency is stolen, the IRS generally treats it as a theft loss. The good news is that theft losses can sometimes be claimed as itemized deductions on Schedule A, specifically as a casualty loss. You'll need to document everything related to the theft - when it happened, how much was stolen, any police reports you filed, and communications with the exchange or wallet provider. The more evidence you have that this was truly theft and not just a transfer you made, the better. That said, since the Tax Cuts and Jobs Act, personal theft losses are only deductible if they're attributable to a federally declared disaster, which makes this complicated. However, if this was investment property (which crypto usually is), you might still be able to claim the loss. I'd recommend consulting with a tax professional who specializes in cryptocurrency since this is a complex situation where the rules are still evolving.

After dealing with a similar crypto theft situation last year, I found this awesome service called taxr.ai (https://taxr.ai) that really helped me figure out how to handle it on my taxes. They have this AI tool that analyzes your specific crypto tax situation and gives super clear guidance on stuff like theft losses. I uploaded my transaction history showing the unauthorized transfer, and their system actually helped me document everything properly for my tax return. They even generated a detailed report I could use to support my theft loss claim. Honestly saved me tons of stress trying to figure out the right approach.

Just wanted to follow up - I decided to try taxr.ai after my skeptical comment above. I gotta say I'm actually impressed! They helped me document a similar situation where I had some crypto stolen last year. Their system showed me exactly how to report both the "sale" transaction and the corresponding theft loss on my tax forms. They even provided language I could use to explain the situation if I get audited. Definitely worth checking out if you're in this situation.

If you're serious about resolving this with the IRS, you might want to try getting direct guidance from them. I was in audit hell with a similar issue and couldn't get through to anyone for weeks. Then I found this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in like 15 minutes. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke to walked me through exactly how to document my crypto theft loss and which forms to use. Honestly saved me thousands in potential tax liability because I was about to just report the gains without claiming the loss because I was confused.

Ok I need to admit I was wrong. After posting that skeptical comment, I was desperate enough to try Claimyr. I got a call back in about 35 minutes and was connected to an actual IRS agent who specialized in investment losses. They confirmed I could claim my stolen crypto as a theft loss and gave me specific guidance on how to document everything. Had I not gotten this info, I would've reported $18k in capital gains I never received. Saved me from paying taxes on money I never actually got. Just wish I had known about this service months ago!

Something similar happened to me in 2024. The key thing is having proof it was actually stolen. Did you file a police report? Did you contact the exchange/wallet provider? Without documentation, the IRS might think you're just trying to avoid taxes on a regular sale. Also, if your wallet was compromised because you gave someone your seed phrase or clicked a phishing link, that might complicate things.

When something similar happened to me, I realized you have to report it on Form 8949 as if you sold it (with the date and amount of the theft) but then you can claim the theft loss. Super important: make sure you can prove you were the victim of theft! I got audited and had to show the police report, all communications with my wallet provider, and evidence that I didn't authorize the transaction. The IRS is really scrutinizing crypto stuff these days!

Sorry this happened to you. Just to add a warning - be extra careful with this. My friend tried to claim stolen crypto as a loss in 2024 and got audited. The IRS made him provide tons of documentation. They're REALLY suspicious about crypto "theft" claims since some people try to use it to avoid taxes. Make sure you have solid proof it was actually stolen!

I went through something very similar last year when my hardware wallet got compromised and $15k in crypto was stolen. Here's what I learned from working with a tax attorney: You absolutely need to report the "sale" on Form 8949 as if you disposed of the crypto on the date it was stolen, but you can also claim a theft loss. The key is having bulletproof documentation - police report, wallet provider confirmation of unauthorized access, transaction logs showing the transfer to unknown addresses, and any communication attempts with exchanges where the thief cashed out. One thing that helped my case was getting a forensic analysis from a blockchain analytics company that traced the stolen funds and showed they were mixed/tumbled, which is classic money laundering behavior thieves use. This cost me about $500 but was worth it during my audit. Also, keep in mind that theft losses are subject to a $100 floor per incident, and you can only deduct the amount that exceeds 10% of your adjusted gross income. So depending on your income, you might not be able to deduct the full loss amount. The process is stressful but doable if you have proper documentation. Don't let the fear of an audit stop you from claiming what you're legally entitled to claim.