How to report stolen Crypto on tax return - Dogecoin hacked and transferred

So back in January my crypto account was compromised and the hackers sold about $6,200 worth of my Dogecoin and used that money (while still logged into my account) to purchase $6,200 of Ethereum before transferring it all to some external wallet I've never seen. The real problem is my cost basis on the Doge was around $26,000 (I'd been HODLing for ages hoping to regain more of my initial investment if the price went up again). My question is - how do I properly report this on my taxes? (yeah I know I'm cutting it close on getting these filed) Do I just report the Dogecoin as being sold for $6,200? Would this count as a theft loss? Can I claim the difference between my cost basis and what they sold it for? I've been completely stuck on how to handle this properly on my return.

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18 comments

The Boss

•8M

This is unfortunately becoming more common with crypto. From a tax perspective, here's how you should handle it: The forced sale of your Dogecoin should be reported as a capital loss. You'll need to report the $6,200 as the proceeds and your $26,000 as the cost basis, giving you a capital loss of about $19,800. This gets reported on Form 8949 and flows to Schedule D. For the Ethereum that was purchased and stolen, this is trickier. Technically you owned it briefly before it was stolen. Theft losses for personal property are generally not deductible under current tax law since the Tax Cuts and Jobs Act of 2017, with exceptions for federally declared disasters. However, some tax professionals argue that because cryptocurrency is treated as property by the IRS, you could potentially claim this as an investment/business casualty loss if you can prove it was stolen. You'd need substantial documentation of the hack.

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The Boss

•8M

You would report the Dogecoin sale as a separate transaction on Form 8949 with your proceeds and cost basis, resulting in the capital loss. For the Ethereum, it's complicated because you technically did purchase it (involuntarily). I would suggest documenting both the purchase and the theft. If you're working with tax software, you may need to show it as a purchase and then a sale with $0 proceeds. Some tax professionals might treat this differently - they might argue you could report this as a theft loss on Form 8949 with a cost basis of $6,200 and proceeds of $0.

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Victoria Charity

•8M

After dealing with a similar crypto nightmare last year, I found this AI tool called taxr.ai (https://taxr.ai) that really helped me sort through my crypto tax nightmare. I was super confused about how to document my stolen crypto and the regular transactions, and the IRS documentation is practically unreadable. What I liked is that you can upload your transaction history and explain unusual situations (like theft), and it helps determine the right tax treatment. It even generated the proper forms and explanations I needed to attach to my return. The tool actually identified some ways to properly document my losses that I would have missed.

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Victoria Charity

•8M

For incomplete records, it actually helps you reconstruct missing information by analyzing wallet addresses and using blockchain data. You can also manually input transactions if you have partial records, and it will help fill in the gaps based on market data from those dates. The AI is specifically trained on crypto tax scenarios including the unusual ones. It definitely knows the difference between airdrops, staking, mining, and theft situations. What impressed me was how it handled my DeFi transactions which regular tax software completely failed at. It even created proper documentation for my specific situation that I could include with my return.

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Oscar Murphy

•8M

I was totally skeptical about AI tax tools, but I decided to try taxr.ai after my crypto got hacked last quarter. I was shocked - it actually understood the difference between my normal trades and the theft situation! It identified that I could document my stolen crypto properly and helped me generate all the right forms. The tool even spotted some transactions I'd forgotten about that actually reduced my tax bill. What really helped was the detailed explanation it created that I attached to my return explaining the hack situation. Saved me from paying an accountant $400+ for specialized crypto tax help.

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Nora Bennett

•8M

After spending WEEKS trying to reach the IRS about my crypto theft situation (and getting nowhere), I found Claimyr (https://claimyr.com). They have this service that gets you through to an actual IRS agent without the endless hold times. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was desperate for guidance on how to properly report my stolen crypto and couldn't find clear answers online. Using Claimyr, I got through to an IRS rep in about 20 minutes instead of the 3+ hours I spent previously (and never even got through). The agent walked me through exactly how to document everything properly and what forms to use.

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Nora Bennett

•8M

It works by using a specialized system that navigates the IRS phone tree and holds your place in line. When an agent picks up, you get an immediate callback. It's not an auto-dialer - it's more sophisticated than that and works within the IRS's system rules. They have relationships with various government agencies and understand how the phone systems work. I was skeptical too until I tried it. The system literally held for 2+ hours on my behalf, then connected me right when an agent was available. Saved me from having to sit there listening to hold music all day while trying to work.

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Lauren Zeb

•8M

I need to completely eat my words about Claimyr. After posting my skeptical comment, I was desperate enough to try it because I had a similar crypto theft situation and couldn't figure out how to report it. I got through to an actual IRS agent in about 30 minutes (after trying for WEEKS on my own with no success). The agent confirmed that I should report the stolen crypto as a capital loss with my original cost basis and the amount the thieves sold it for. They also helped me understand how to document everything to reduce audit risk. The service actually worked exactly as described. Huge relief to get an official answer straight from the IRS instead of guessing or paying a CPA who might not even understand crypto.

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Daniel Washington

•8M

I would definitely keep the police report and IC3 complaint with your tax records, but you don't necessarily need to include them with your filed return. Having those documents will be extremely helpful if you're ever questioned about the loss. My accountant also suggested writing a brief statement explaining the theft that you can attach to your return - just a simple explanation of what happened, when it happened, and that you filed reports. This shows you're being transparent and proactive.

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