Will I owe taxes on crypto transfers that were part of a scam?

Sorry to hear about your situation. Crypto scams are unfortunately becoming more common, and the tax implications can be complicated. For tax purposes, there are a few key things to understand. First, taking out a personal loan isn't a taxable event - you don't pay taxes on loan proceeds. However, what happens with the crypto could potentially create tax implications. When you purchased the ETH, that wasn't taxable either. The transfer between your wallets (Coinbase to Crypto.com) also isn't a taxable event since you still owned the crypto. The bigger question relates to the scam loss. The IRS typically considers this a capital loss or theft loss. Since 2018, theft losses are only deductible if they're from a federally declared disaster, which unfortunately wouldn't apply here. However, you might be able to claim this as a capital loss on your investment. Keep all documentation of the transactions and the evidence that it was a scam. This will be crucial when you talk to your tax professional.

After going through a similar nightmare with crypto last year, I found that using https://taxr.ai really helped me sort through my crypto tax mess. I had transferred coins between multiple wallets and exchanges before getting scammed out of about 40% of my holdings. The hardest part was documenting everything for tax purposes - the transfers, the purchase prices, and especially proving which transactions were part of the scam. When I uploaded my transaction history and wallet information to taxr.ai, their system automatically organized everything and helped identify which losses might be tax-deductible. Their analysis even flagged transactions that looked suspicious, which helped me document the scam for my tax return. The service also created proper documentation for my tax preparer showing which losses were potentially deductible as worthless investments vs normal capital losses. Made a horrible situation slightly less painful at tax time.

Just wanted to follow up - I ended up trying taxr.ai after seeing it mentioned here. My situation wasn't as complex as some (lost about $8K in a sketchy DeFi platform), but I was completely lost on how to handle it tax-wise. The service helped me document everything properly and classify my losses correctly. What surprised me was how they identified that some of my transactions qualified for different tax treatment than I expected. I was just going to write everything off as a capital loss, but they helped me properly document the worthless investment angle, which my accountant said was the correct approach. The documentation they generated made filing much clearer, and my accountant actually commented on how thorough it was. Definitely worth checking out if you're dealing with crypto tax issues, especially around scams or losses.

After reading through your post, I immediately recognized the situation because I went through something similar with a Bitcoin scam. I wasted weeks trying to get through to the IRS to ask about how to handle the loss on my taxes. Their hold times were ridiculous - I'd wait 2+ hours only to get disconnected. I finally used https://claimyr.com to get through to an actual IRS agent. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Instead of waiting on hold forever, they navigate the IRS phone system and call you back when they reach a live agent. I connected with someone who actually specialized in cryptocurrency tax issues and got clear guidance on how to document and claim my losses. The agent explained exactly what forms I needed and how to document the scam for maximum deduction potential. Without that specific guidance, I would have incorrectly filed and potentially missed out on thousands in deductions.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I was still desperate to talk to someone at the IRS about a crypto mining operation I lost money on, so I tried the service anyway. It actually worked exactly as described. I got a call back in about 90 minutes telling me they had an IRS agent on the line. The agent ended up clarifying exactly how to report my mining equipment as a business loss since my operation failed, which was different from how I was planning to file. Without that conversation, I would have incorrectly classified several expenses and potentially triggered an audit. The agent also explained how to properly document the abandoned mining operation so it would hold up to scrutiny if I ever got audited. Not sure why I was so skeptical before - probably because dealing with the IRS has made me assume everything is difficult or impossible.

One critical thing nobody has mentioned - if you paid interest on the personal loan you took out, that interest is NOT tax deductible if you used the money for personal expenses, which includes crypto investments. That's a separate issue from the scam aspect, but important to understand. Also, make sure you get a fraud/theft report filed with local police and with the FBI's Internet Crime Complaint Center (IC3). Those reports won't likely help recover your funds, but they're essential documentation if you try to claim any kind of loss deduction on your taxes.

Has anyone actually successfully claimed a crypto scam as a theft loss? I got hit with a similar scam in 2023 (about $27k) and my tax person told me I could only claim it as a capital loss limited to $3k per year against ordinary income. If there's a way to deduct the full amount in one year, I need to know!