Can I deduct crypto I lost to a scam?

The full answer

In the US, the answer depends on why the money was sent. The IRS Office of Chief Counsel released memo 202511015 on March 14, 2025, working through several scam types under the section 165 theft-loss rules.[1] Losses from scams in which the victim was trying to make money can qualify. Losses from the romance and kidnapping scams did not, because the memo found no profit motive for those transactions. In Canada, no CRA guidance on the point was found. This page gives general information, not tax advice; the IRS and CRA pages linked here, or a tax professional, decide how it applies to a particular return.

Which scams can qualify in the US?

The memo considered several scenarios, including a compromised account scam, a “pig butchering” investment scam and a phishing scam. For victims whose motive was to safeguard existing investments or make new ones, it found that “these actions qualify as a transaction entered into for profit under § 165©(2),” regardless of intermediate steps taken at the scammer’s direction.[1] For the romance scam and the kidnapping scam, it found “there is no profit motive for the transaction, and the loss is a disallowed personal casualty loss.”[1] The memo adds that when a romance scammer steers the victim into a fraudulent investment, the analysis is the same as for the pig butchering scam.[1]

The 2025 Form 4684 instructions turn this into three conditions. “Victims of certain scams may claim a theft loss deduction under section 165 if all the following conditions apply”: the loss results from criminal conduct classified as theft under state law, the taxpayer has no reasonable prospect of recovering the stolen funds, and the loss arises from a transaction entered into for profit.[2] How investment-style scams work is on online crypto profit scams.

Why were romance-scam losses excluded?

Because of a limit on personal losses. The Form 4684 instructions say that for tax years beginning after 2017, casualty or theft losses of personal-use property not connected with a trade or business or a transaction entered into for profit “are deductible only if the loss is attributable to a federally declared disaster.”[2] A loss outside a transaction entered into for profit is a personal loss, so it falls under that limit.

Does the limit continue after 2025?

Yes. The limit was written to run from 2018 through 2025. A July 4, 2025 law, Pub. L. 119-21, struck the words ending it before January 1, 2026. Section 165(h)(5) of the Internal Revenue Code now applies it to “a taxable year beginning after December 31, 2017,” allowing a personal casualty loss “only to the extent it is attributable to a Federally declared disaster (as defined in subsection (i)(5)) or a State declared disaster.”[5] IRS Publication 547 for 2025 states the rule the same way, with no end year, and notes that it “does not apply to losses on income-producing property, such as losses from Ponzi-type investment schemes, or financial scams.”[3]

What is the argument against the current rule?

The criticism cited here comes from the National Taxpayer Advocate’s 2025 Purple Book. It recommended letting the limitation on theft loss deductions expire so scam victims are not taxed on amounts stolen from them.[4] The report’s text could not be captured for a word-for-word check, so this is given as the Advocate’s recommendation as titled. The July 2025 law kept the limit in place instead.[5] In this page’s analysis, the profit test means two people who lost the same XRP to the same criminals can be treated differently depending on the story they were told.

What about Canada?

No CRA page on the tax treatment of crypto lost to scams or theft was found on canada.ca searches made on September 29, 2026. A Canadian victim would need to raise it with a tax professional. How the two countries’ general rules differ is on do I pay tax on XRP in Canada or the US.

What records support a claim?

The 2025 Form 4684 instructions require that the taxpayer have “no reasonable prospect of recovering the stolen funds.”[2] IRS Publication 547 says a theft-loss claimant “should be able to show” that they owned the property, “That your property was stolen,” when they discovered it missing, and whether a claim for reimbursement exists “for which there is a reasonable expectation of recovery.”[3] It names points, not documents. In this page’s analysis, for XRP the evidence would include transaction hashes, the addresses involved, messages with the scammer, and reports made to police or fraud agencies. Reporting steps are on how to report an XRP scam, and the full record list is on what records to keep for crypto taxes. Anyone offering to recover the XRP for a fee is covered on crypto recovery scams.