Crypto Losses Not Deductible: What You Can and Can’t Claim on Taxes

When you sell your crypto at a loss, it’s natural to think you can write it off like stock losses—but the crypto losses not deductible, the IRS treats cryptocurrency as property, not currency, which changes how losses are handled. Also known as cryptocurrency tax loss harvesting, this concept trips up most traders because the rules are stricter than they look. The IRS doesn’t let you deduct crypto losses against your ordinary income unless you’ve completely closed out your entire crypto position and have no other holdings. Even then, there’s a $3,000 annual cap on net capital losses you can use to reduce your taxable income. Anything beyond that gets carried forward to next year.

Most people lose crypto in scams, abandoned tokens like Burnsdefi (BURNS), a nearly dead token with zero trading volume and no utility, or illiquid projects like SLEX Token, a BEP-20 token with no exchange listings and no liquidity. But here’s the catch: if you didn’t sell it—meaning you still hold it, even if it’s worth $0—you can’t claim a loss. The IRS only recognizes realized losses. That means if your wallet holds a token that dropped 99%, but you never traded it, your loss is just paper. No deduction. No refund. Just a reminder to check your portfolio.

What about stolen crypto? If your exchange got hacked or you lost access to your private keys, you might think that’s a theft loss. The IRS says no—unless you can prove it was a crime, you filed a police report, and you’ve exhausted all recovery options. Most cases don’t meet that bar. Even if you lost crypto in a scam like the PAXW Pax.World NFT airdrop, a project that vanished with no rewards or platform, you still can’t claim it unless you sold it first. The same goes for failed airdrops, dead tokens, or rug pulls. If you didn’t cash out, the IRS sees it as a worthless asset, not a tax-deductible loss.

So what can you actually deduct? Only the losses from actual sales or trades where you exchanged crypto for fiat, another crypto, or goods. If you bought ETH for $2,000 and sold it for $800, you’ve got a $1,200 capital loss. That can offset gains from other trades. But if you sent ETH to a scammer and never got it back? That’s not deductible. The rules are harsh, but they’re clear. Don’t assume your losses are tax-friendly. Track every trade. Know the difference between realized and unrealized. And never rely on forum advice when the IRS has the final word.

Below, you’ll find real cases of crypto projects that vanished, exchanges that failed, and airdrops that disappeared—each one a lesson in why timing, documentation, and understanding the tax code matters more than the price chart.