Lost or Stolen Crypto, Can You Claim a Tax Deduction?

The crypto world is full of risk: hacks, lost keys, exchange collapses, rugpulls. But what happens when you lose your crypto, can you write it off on your taxes?

Spoiler: It depends on where you live and how you lost it.

How the IRS (US) Handles Lost/Stolen Crypto

• 2017 Change: Before the Tax Cuts & Jobs Act (TCJA), individuals could sometimes deduct theft losses. Post-2017, personal theft/casualty losses are no longer deductible (except in federally declared disasters).

• Lost Private Keys: Considered a personal negligence issue → not deductible.

• Exchange Hacks: Generally not deductible for individuals.

• Business Holders: If you run a business (trading, mining), you may deduct losses as business expenses.

How HMRC (UK) Handles Lost/Stolen Crypto

• Lost Private Keys: HMRC allows you to make a “negligible value claim” if you’ve permanently lost access. Treated as a disposal → creates a capital loss you can use against gains.

• Exchange Hacks/Rugpulls: Treated case by case. If you can prove the asset is gone, you may be able to claim a capital loss.

• Caveat: You need strong evidence (transaction records, exchange statements, police reports).

Grey Areas & Challenges

• Proving Permanence: Tax agencies want proof your crypto is “truly gone.” If there’s any chance of recovery (e.g., bankrupt exchanges), you may not be able to claim immediately.

• Classification Issues: Personal investment vs business use changes how the tax treatment applies.

Practical Tips if You’ve Lost Crypto

• Document everything: wallet addresses, tx IDs, exchange emails, legal filings.

• Don’t assume deductible = immediate. Timing matters.

• Consult a tax advisor before claiming — wrong filings = penalties.

• Diversify custody (cold wallets + regulated exchanges).

Lost crypto hurts, but tax relief depends on where you are and how you lost it. In some cases (UK: negligible value, business losses), you can claim. In others (US individuals), the IRS gives no relief.