Are Crypto Losses Tax Deductible?

The order losses are applied

• Short-term losses offset short-term gains; long-term losses offset long-term gains
• Any remaining net loss then offsets the other category
• Up to $3,000 of what is left reduces ordinary income such as wages
• The rest carries forward to future years with its character intact

You have to realize the loss

A token that is down 80% produces no deduction while you hold it. The loss becomes deductible when you dispose of it — sell it, trade it, or otherwise close the position — and the disposal has to be documented on-chain or on an exchange statement.

Wash sales and crypto

The wash sale rule in section 1091 applies to stock and securities. Digital assets have historically fallen outside it, which is why tax-loss harvesting has been more flexible in crypto than in equities — but proposals to extend the rule recur in every budget cycle, so the treatment should be confirmed for the year you are filing rather than assumed.

Worthless, abandoned, locked, and stolen

• Worthless or abandoned tokens can support a loss, but only with evidence the asset has no value and the position was affirmatively abandoned
• Coins frozen on a bankrupt exchange are generally not deductible until the claim is resolved and the recoverable amount is known
• Theft and scam losses on personal investments run through the casualty and theft rules, which are sharply limited for tax years 2018 through 2025
• Losses tied to a profit-seeking transaction may be treated differently from purely personal losses — the facts, and the documentation, decide it

Harvesting losses on purpose

Before December 31, review every lot with an unrealized loss against the gains you have already realized. Harvesting the right lots can erase a gain you have already triggered, and choosing which lots to sell is where most of the savings actually comes from.