💰 Crypto Losses, Tax Gains: 2025 Edition

💰 Crypto Losses, Tax Gains: 2025 Edition

For the 2025 tax year (filed in 2026)
Sources: IRS Notice 2014-21, Pub. 544, Pub. 550, Pub. 551, Pub. 547, CCA 202302011, Virtual Currency FAQs

byMinutes Crypto/November 24, 2025/inCrypto Blog

⚖️ What the IRS Says About Crypto Losses

Cryptocurrency is treated as property, not currency, under IRS rules.
That means gains and losses on crypto sales, swaps, or payments are taxed like stocks or real estate.

✅ Good news: If you sold crypto at a loss, those losses can offset capital gains or reduce your taxable income.
❌ Bad news: Losses from hacks, scams, or thefts are not capital losses, and for most individuals they’re not deductible through at least 2025 under Pub. 547 and CCA 202302011.

🧾 How Capital Loss Deductions Work

Offset Your Capital Gains
If you sold crypto at both gains and losses, use the losses to offset your gains.
Reduce Your Income Tax
If your net loss exceeds your total gains, you may deduct up to $3,000 ($1,500 if married filing separately) from ordinary income.
Carry Forward the Rest
Any unused losses carry forward indefinitely to future years.

💡 Example:
You gained $2,000 on ETH but lost $8,000 on BTC.

Offset the $2,000 gain completely.
Deduct $3,000 from ordinary income.
Carry the remaining $3,000 forward.

🔍 Step-by-Step: Reporting Legitimate Crypto Losses

Step 1: Calculate Your Capital Loss

Formula: Loss = Cost Basis − Proceeds

Cost basis: What you paid (including fees). Look at the MinutesCrypto.com blog to see the changed rules on how to determine the basis starting in 2025.
Proceeds: What you received when sold, swapped, or spent.

💡 Example: Bought 1 BTC for $12,000 + $100 fee = $12,100 basis. Sold for $9,000 → $3,100 loss.

Step 2: Report Correctly

Form 8949 – List every taxable trade (dates, cost basis, proceeds, gain/loss).
Schedule D (Form 1040) – Summarize short-term (≤ 1 year) and long-term (> 1 year) totals.
Schedule 1, Line 8z – Report income from staking, airdrops, or yield farming as ordinary income.

Step 3: Offset & Deduct

Offset capital gains from crypto, stocks, or real estate.
Deduct up to $3,000 of net loss against income; carry forward the rest.

🛡️ Hacks, Scams, and Exchange Failures

Here’s where many taxpayers get tripped up.
Under current law (IRC §165 & §67(g)), and as clarified in IRS CCA 202302011, personal-use crypto losses from theft, scam, or collapse are not deductible.

Why Not?

No sale or exchange: You didn’t dispose of the asset for value → no capital loss.
No identifiable event: You still own or control the asset → no fixed loss event.
TCJA limitation: Even if it were a §165 loss, §67(g) suspends these miscellaneous deductions through 2025.

✅ Possible exception: If the crypto was used in business operations rather than held as a personal investment, a §165(a) business loss may be deductible, provided you can fully document the theft or loss. MinutesCrypto.com is designed for businesses to keep the track of their transactions in crypto. Therefore, it is likely that since you are using our solution, and if you are using crypto in your business, your losses are deductible but exercise due care as always.

Otherwise, for individual investors, losses from exchange hacks, wallet thefts, or rug pulls are nondeductible until at least 2026.

If You’re a Victim of a Hack or Scam

Document Everything
Exchange statements, wallet logs, transaction IDs, screenshots, and emails.
File Reports

FBI (IC3.gov)
FTC reportfraud.ftc.gov
Local police (to establish official record).

Consult a Crypto-Literate CPA or Tax Attorney
Some complex cases (e.g., FTX bankruptcy, proven worthless property) may allow a future deduction, but not yet.

🧠 Quick Reference Table

Situation	IRS Treatment	Deductible?	Authority
Exchange frozen (funds locked)	Ownership uncertain	❌ Not yet	Pub. 547; CCA 202302011
Exchange assets proven worthless	Worthless property (§165(a))	✅ Possible when zero value	Morton & Echols cases
Rug pull / scam token	Personal theft/fraud	❌ No	§165(c)(3); §67(g)
Wallet hack	Personal theft	❌ No	Pub. 547; CCA 202302011
Business crypto theft	Business loss	✅ Yes	§165(a)
Market collapse (coin still trading)	Decline in value	❌ No	CCA 202302011

🧩 Real-World Examples

Case 1: Token Collapse
You bought 500 XYZ tokens for $5,000. They’re now worthless.
If you can prove there’s no market and no future value, you may claim a capital loss for worthless property under §165(a). Keep proof of permanent worthlessness.

Case 2: Exchange Insolvency
You held $12,000 on a failed exchange. Until the bankruptcy fully resolves, there’s no deductible event. If recovery = $0, you may claim a worthless property loss in that year.

🧮 Smart Record-Keeping Tips

Maintain complete transaction logs (dates, amounts, USD values, fees).
Save exchange statements and wallet history.
Keep copies of law-enforcement and bankruptcy filings.
Retain records for at least seven years.

📘 Key IRS References (for 2025 Returns)

IRS Notice 2014-21: Crypto treated as property.
Pub. 544: Sales and Other Dispositions of Assets.
Pub. 550: Investment Income and Expenses.
Pub. 551: Basis of Assets.
Pub. 547: Casualties, Disasters, and Thefts (clarifies personal theft loss limits 2018–2025).
IRS CCA 202302011: Crypto declines and “abandonment” are not deductible losses unless wholly worthless and disposed of.

IRS FAQs on Digital Assets: irs.gov/digitalassets.

🏁 Final Thoughts

Crypto losses can still save you money at tax time — but only when you’ve sold, exchanged, or disposed of the asset.

✅ Track and report all transactions.
✅ File on Forms 8949 and Schedule D.
✅ Deduct up to $3,000 of net loss each year.
✅ Carry forward the rest.

🔒 Losses from hacks, scams, thefts, or market collapses are not deductible for individuals through 2025, unless you operate a business where crypto is held as inventory or for income production.
Document everything and consult a qualified tax professional before claiming any loss related to digital assets.

We welcome your feedback, questions and ideas, comment below or email us at hello@minutescrypto.com.

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Disclaimer

The information provided in this article is for general informational purposes only and does not constitute legal, accounting, or tax advice. Tax laws are complex and subject to change, and individual circumstances may vary, often resulting in different tax outcomes than those described under general rules. Readers are strongly encouraged to consult a qualified tax professional or advisor to obtain advice specific to their personal situation. The author and publisher assume no responsibility for any errors, omissions, or outcomes resulting from the use of this information.

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