Crypto

years to recoup a fraction of my investment. Can I deduct my loss as a theft/casualty loss? A. This is a controversial area. If it is a casualty or theft loss that triggered the closing of the exchange, the Internal Revenue Code does not allow such losses presently under a law that is effective through 2025. If the previous law, allowing theft losses, becomes law again as scheduled, and that is when the loss is crystallized, you should be able to take the loss then.
When the Madoff Ponzi scheme was discovered, the IRS issued several Revenue Procedures in 2009 allowing for ordinary losses to be taken at varying percentages depending on certain factors. Why wouldn’t the current bankruptcies or “hacks” qualify for similar treatment? A. The Madoff theft losses were direct losses by investors who had placed money with him, which he embezzled. Also, theft losses were allowed as ordinary deductions at the time. Present “hacks” of an exchange where individual DAs are stolen would seem to qualify for a direct theft but theft losses are not currently deductible at all until the present law sunsets in 2025. Also, if general embezzlement or theft of an exchange’s assets lead to its demise for lack of capital but there is not a direct link to the theft of assets of an individual, that is not considered a “theft” loss. These rules are complicated and each set of facts must be examined to determine what tax law might apply to allow some current tax loss.