Can You Deduct a Crypto Scam Loss on Your Taxes?

If you lost money in a crypto scam, you may be able to deduct part of the loss on your federal tax return, but only in some situations. Whether you can depends mainly on one question: did you hand the money over hoping to make a profit? This page explains the rules in plain language. It is general information, not tax advice.

Can you deduct a crypto scam loss? The short answer

Possibly, if the scam was an investment. Tax law treats a theft loss from “a transaction entered into for profit” differently from a personal theft loss. Section 165(c)(2) allows the first kind. Personal casualty and theft losses are generally allowed only when they come from a federally or state-declared disaster (or to offset personal casualty gains), and a 2025 law made that limit permanent. So a loss where you were trying to invest may be deductible; a loss where you paid a scammer for personal reasons, such as a fake emergency, generally is not.

In a 2025 memo (CCA 202511015), IRS lawyers applied these rules to five scam examples. The memo is not binding precedent and depends on each taxpayer’s facts, but it is the clearest guidance available, and the IRS’s Form 4684 instructions now point to it.

Scam losses that may qualify

In the IRS memo, three victims could deduct their losses because the money was sent, moved or held for profit. Two sent or moved money for investment reasons, and one had invested funds taken directly from their accounts:

• A “pig butchering” victim who invested on a fake crypto trading platform.
• A victim of an impersonation scam who was told their accounts were compromised and moved investment funds to “protect” them.
• A phishing victim whose accounts were accessed and funds taken.

The memo also notes that if a romance scam turns into a fake investment, the analysis is the same as for the pig-butchering victim.

Scam losses that usually don’t qualify

• A romance scam where you sent money to help the “partner” with an emergency, travel or fees, with no investment involved.
• Paying a ransom or extortion demand, such as a fake kidnapping call.
• Other payments made for personal rather than profit-making reasons.

How much you can deduct

• What you actually put in, not the balance on the screen. The memo says the deductible amount is your basis in the stolen funds. You generally can’t deduct “profits” a scam platform showed you but that you never received or reported as income.
• Fees to “unlock” withdrawals. The memo notes that fees, taxes and other amounts paid to try to withdraw increase the amount of the loss. This comes from a footnote in a non-binding memo, so confirm it with a tax professional.
• Money taken from an IRA or 401(k). A distribution you took to send to the scammer is generally still taxable, even though you were scammed. The theft loss may offset it, depending on your facts.

When to claim it

A theft loss is claimed for the tax year in which you discover it, not the year you sent the money. But if, in that year, you have a claim for reimbursement with a reasonable prospect of recovery, you have to wait until it’s reasonably certain whether you’ll get money back. In the IRS memo, the victims discovered the thefts and concluded there was no reasonable prospect of recovery in the same year.

If the discovery year’s return was already filed without the loss, you can generally amend it on Form 1040-X within 3 years after you filed or 2 years after you paid the tax, whichever is later (IRS instructions).

How it is reported

• The loss is figured on Form 4684, Section B (business and income-producing property).
• It then goes on Schedule A as an itemized deduction (“other itemized deductions”), so it only helps if you itemize.
• The IRS’s Ponzi-scheme “safe harbor” (Form 4684, Section C) generally won’t apply to typical crypto scams: it requires the lead figure to have been criminally charged or named in a criminal complaint, and the memo found it didn’t apply where the scammer was never identified or charged.

What to gather for your tax preparer

• Every transfer you made: dates, amounts, transaction IDs, wallet addresses, and bank or exchange statements showing the money going out.
• Records of any fees or “taxes” you paid to the platform.
• Screenshots of the scam platform, messages and websites.
• Your reports to the FBI (ic3.gov), the FTC and your local police, and any response.
• Any money you got back, and any pending claim that could return money.

Crypto scam losses and taxes: common questions

Can I deduct the money I lost in a pig butchering scam?

Possibly. In the IRS memo’s pig-butchering example, the loss was deductible as a theft loss because the victim invested to make a profit. It depends on your facts, including when you discovered the theft and whether you have a reasonable prospect of getting money back, so talk to a tax professional.

Can I deduct a romance scam loss?

Usually not, if you sent money for personal reasons like an emergency or travel: personal theft losses aren’t deductible outside declared disasters. If the romance scam led you into a fake investment, the IRS memo says the analysis is the same as for an investment scam.

Do I owe tax on the fake profits the scam platform showed?

The IRS has said you can’t deduct fake profits you never reported as income, but it hasn’t issued simple guidance on scam-platform balances you never received. Ask a tax professional before reporting anything from a scam platform’s numbers.

Will personal scam losses become deductible again in 2026?

No. The limit on personal casualty and theft losses was due to expire after 2025, but a 2025 law made it permanent. The added category for state-declared disasters covers events such as natural disasters, fires and floods, not scams.

I lost money in an earlier year. Is it too late?

Not necessarily. The loss belongs to the year you discovered the theft. If that year’s return is already filed, you can generally amend it within 3 years after filing or 2 years after paying the tax, whichever is later.

This page is general information, not tax, legal or financial advice. Tax results depend on your specific facts. Talk to a qualified tax professional before claiming a deduction. ChainWatch is a blockchain-forensics firm, not a law or accounting firm.

Sources

• IRS Office of Chief Counsel, CCA 202511015 (Jan. 17, 2025; released Mar. 14, 2025)
• 26 U.S.C. § 165 (losses), including § 165(c)(2), § 165(h)(5) and the 2025 amendment notes (Public Law 119-21)
• 26 CFR 1.165-8 (theft losses) and 1.165-1(d)(3) (reasonable prospect of recovery)
• IRS Instructions for Form 4684 (2025)
• Rev. Rul. 2009-9 and Rev. Proc. 2009-20 (Internal Revenue Bulletin 2009-14)
• IRS Instructions for Form 1040-X

The information on this page was checked against the sources listed on September 29, 2026. Laws, agency guidance, company policies and contact details change, so please verify the current information with the original source before you act.