Crypto Losses Not Deductible: Why You Can't Write Off Bad Investments

When you lose money on crypto, it feels like a loss—just like losing money on stocks or real estate. But under current tax rules in the U.S. and many other countries, crypto losses not deductible, unlike traditional capital losses, crypto losses often can’t be claimed to reduce your taxable income. Also known as non-deductible digital asset losses, this rule catches most traders off guard because it breaks the familiar pattern of tax relief. The IRS treats crypto as property, not currency. That means if you buy Bitcoin at $50,000 and sell it later at $20,000, you have a $30,000 capital loss. But here’s the catch: unless you sold it for cash and reported the transaction, you can’t use that loss to offset other income—even if you lost your entire portfolio to a scam or abandoned project.

Why does this matter? Because people lose money all the time on crypto. Look at the posts below: Liquidus’s old LIQ token dropped to less than a cent, Serum Swap vanished with its liquidity, and Noodle (NOODLE) had zero tokens in circulation. These weren’t just bad trades—they were total wipeouts. But if you held those tokens and never sold them, the IRS doesn’t recognize the loss. Same goes for airdrops that turned out to be fake, like TOKAU ETERNAL BOND or CBSN StakeHouse NFTs. No sale = no tax event = no deduction. Even if you sent crypto to a dead address or got hacked, unless you can prove a realized loss through a documented sale or exchange, you’re out of luck.

There’s a big difference between crypto tax loss, a realized loss from selling or trading crypto for fiat or another asset and an unrealized loss. You can only claim the former. That means if you bought ETH at $3,000 and it’s now worth $1,800 but you still hold it, you can’t deduct that $1,200. But if you sold it for $1,800, then you can use that loss to offset gains from other crypto trades—up to $3,000 per year against ordinary income. Any excess? You carry it forward. But here’s the problem: most people don’t track their trades properly. They think “I lost $10,000” means “I can reduce my tax bill.” It doesn’t. And that’s why so many end up paying more than they should—or worse, getting audited for missing reporting.

Even worse, some try to fake a sale to create a deductible loss. That’s tax fraud. The IRS and other agencies are getting better at tracking on-chain activity. If you’re using a decentralized exchange with no KYC, they still see the transaction. They don’t care if you used a burner wallet—what matters is whether you transferred value out of your control. And if you didn’t? No deduction. Not even for scams like Coinbuy.cash or OpenSwap, which are outright frauds. You might be a victim, but the tax code doesn’t care.

What you can do is track every trade, every swap, every wallet transfer. Use tools like impermanent loss calculators, which help you understand hidden losses in DeFi pools to see how much you really lost—not just in price, but in opportunity. Know the difference between a bad investment and a taxable event. And remember: if you didn’t cash out, you didn’t lose it for tax purposes. That’s the harsh truth behind every post below—whether it’s about Serum Swap, Kudai, or Midnight’s NIGHT token. The market doesn’t care if you’re broke. The tax system won’t either. But understanding this rule? That’s your first real advantage.

Below, you’ll find real cases of people who lost everything—and why none of those losses helped them at tax time. You’ll also see what actually works, what’s a scam, and how to avoid making the same mistakes. This isn’t about hope. It’s about facts.