Can You Claim Cryptocurrency Losses on Taxes?

• Blockchain Council
• February 20, 2025

Handling cryptocurrency taxes can get tricky, especially when dealing with losses. Many investors wonder: Can you claim cryptocurrency losses on taxes? The short answer is yes, but there are rules to follow. Knowing how to report losses properly can make a big difference in your tax obligations. This guide will walk you through everything you need to know about claiming cryptocurrency losses in 2025.

How the IRS Views Cryptocurrency

The IRS treats cryptocurrency as property, meaning all transactions—including buying, selling, trading, and disposing—are subject to capital gains tax rules. Much like stocks or real estate, you must report any gains or losses when filing taxes. If you’ve lost money on cryptocurrency investments, understanding how to use those losses to reduce taxable income is key.

Can You Claim Cryptocurrency Losses on Taxes?

Yes, but only under specific conditions. Crypto tax rules allow investors to use capital losses to offset gains. If you lost money trading crypto, those losses can be used to lower taxable income. Claiming crypto losses requires accurate reporting. If your digital assets lost value after you sold or exchanged them, you might be eligible for deductions. Here’s how to do it correctly:

1. Maintain Detailed Records

Accurate records are the foundation of tax reporting. To claim cryptocurrency losses on taxes, you need a record of:

• The dates of each purchase, sale, or trade
• The price you paid and the selling price (cost basis)
• The type of transaction (buy, sell, or trade)
• The fair market value of the cryptocurrency at the time of each transaction

Keeping thorough records ensures you can properly calculate gains and losses when filing your tax return.

2. Calculate Gains and Losses

To determine your cryptocurrency loss, subtract the purchase price from the selling price. If the result is negative, you’ve experienced a loss. These losses can be used to offset capital gains from other investments.

If losses exceed total gains, you can deduct up to $3,000 per year ($1,500 for married individuals filing separately) against regular income. Any remaining losses can be carried forward to future tax years.

Offsetting Crypto Losses with Other Investments

One effective way to lower your cryptocurrency tax bill is through tax-loss harvesting. This means selling underperforming assets to balance out taxable gains from other investments. If you’ve earned profits from stock market investments but experienced losses in cryptocurrency, those losses can help offset the gains, reducing overall taxable income.

There’s no limit on the amount of capital gains you can offset using crypto losses, but only $3,000 in excess losses can be deducted against ordinary income per year. If you have losses beyond that limit, you can apply them in future tax years.

Here’s how it works:

• If you made $10,000 in stock gains but lost $6,000 in crypto, you’ll only pay taxes on the remaining $4,000 gain.
• If your crypto losses exceed total gains, you can deduct up to $3,000 against regular income, reducing your tax bill.
• If you still have more than $3,000 in losses, the IRS allows you to carry those losses forward to future years.

Required Forms for Reporting Crypto Losses

To properly report cryptocurrency tax losses, you’ll need to fill out the correct tax forms:

• Form 8949: Lists each cryptocurrency transaction individually, including dates, costs, proceeds, and resulting gains or losses.
• Schedule D (Form 1040): Summarizes total capital gains and losses from all investments, including cryptocurrency.

Failing to include these forms or mismatching transaction details with IRS records can trigger an audit, so accuracy is critical.

Limitations on Claiming Cryptocurrency Losses

Not all crypto losses are tax-deductible. Under the Tax Cuts and Jobs Act, the IRS does not allow deductions for stolen or lost cryptocurrency. If your digital assets were lost due to scams, hacks, or misplaced private keys, those losses cannot be written off.

However, if you documented losses from before 2017, you might still qualify for deductions. Keeping past transaction records is essential when dealing with older cryptocurrency tax claims.

If your digital assets were:

• Hacked, stolen, or scammed – These losses cannot be deducted.
• Lost due to misplaced private keys – Not considered deductible by the IRS.
• Held on a collapsed exchange – If you haven’t officially sold or disposed of the assets, they may not qualify as deductible losses.

New IRS Regulations in 2025

Tax laws for cryptocurrency continue to evolve. As of January 1, 2025, cryptocurrency brokers must report all digital asset sales to the IRS using Form 1099-DA. This form provides detailed transaction data to ensure compliance and prevent tax evasion.

The IRS has also confirmed that taxpayers can still use Last In, First Out (LIFO) or Highest In, First Out (HIFO) accounting methods in 2025, even if their exchange does not support them. These methods allow taxpayers to reduce taxable income by selecting the most favorable cost basis when selling assets.

Tax Loss Harvesting for Crypto Investors

Tax-loss harvesting is a common strategy among crypto investors. It involves selling underperforming assets to realize losses that can offset taxable gains. This strategy can be useful in the highly volatile cryptocurrency market, where asset values frequently change.

Before selling, consider the possibility that an asset’s value could rebound. If you sell at a loss, you cannot immediately repurchase the same cryptocurrency due to potential IRS rules restricting “wash sales” for digital assets.

Avoiding IRS Audits on Crypto Transactions

The IRS has increased scrutiny on cryptocurrency tax filings, making accurate reporting more critical than ever. To avoid issues:

• Report all cryptocurrency-related income, including profits from mining, staking, or airdrops.
• Keep complete records of all transactions, including dates, amounts, and reasons for each trade.
• Match your reported data with exchange-provided information to prevent discrepancies that could trigger an audit.

Real-World Example of Non-Compliance

A well-known legal case in February 2025 demonstrated the consequences of failing to report cryptocurrency activity. Attorney Tom Goldstein was arrested after moving large amounts of cryptocurrency without reporting it to tax authorities. His case highlights how serious tax agencies have become about enforcing crypto-related tax laws.

Cryptocurrency Taxes in the Netherlands

Not all countries tax cryptocurrency in the same way. In the Netherlands, crypto taxation follows a unique system where taxes are based on the assumed value of assets rather than actual gains or losses.

Box 3 Taxation

In the Netherlands, cryptocurrency is considered part of Box 3, which covers savings and investments. Taxes are based on a fixed percentage of an asset’s value as of January 1 each year, regardless of whether the asset’s price rises or falls throughout the year.

Because the tax is calculated on an assumed return, individual losses do not directly affect taxable income. However, a significant drop in asset value may reduce future tax obligations. Keeping track of all transactions and valuations is necessary for accurate filings.

Steps to Manage Crypto Losses Effectively

To stay compliant and reduce tax liability, crypto investors should:

1. Keep Detailed Records – Store transaction history, including dates, values, and types of trades.
2. Use Tax-Loss Harvesting – Sell losing assets strategically to balance taxable gains.
3. Stay Updated on Tax Regulations – Cryptocurrency tax laws change frequently, so follow updates from tax authorities.
4. Consult a Tax Expert – Working with a professional familiar with cryptocurrency taxation can help optimize deductions and avoid errors.

Final Thoughts

So, can you claim cryptocurrency losses on taxes? Yes, but following IRS rules is essential. Knowing how to claim cryptocurrency losses on taxes can help investors reduce their tax burden and stay compliant with IRS regulations. By accurately reporting losses, offsetting taxable gains, and using strategies like tax-loss harvesting, crypto investors can significantly reduce their tax liability.

With new IRS regulations in 2025, staying informed is more important than ever. If you’re unsure how to proceed, working with a crypto tax professional can help you maximize deductions while staying compliant with tax laws.