Can you write off crypto losses? Worthless and rugged tokens

What does the sale route need?

A sale is a closed transaction. The IRS FAQ says a sale of virtual currency for real currency is a capital gain or loss, reported on Form 8949 and summarized on Schedule D [3]. The loss is the cost basis minus what the sale returned. If the token fetched nothing, the loss is the whole basis.

The character of the loss depends on the holding period. A capital asset held for one year or less gives a short-term loss, and one held for more than one year gives a long-term loss [7]. The Schedule D instructions say the same thing in the same words [2]. The dates come from the wallet or the exchange record, not from memory.

Capital losses offset capital gains first. What is left offsets ordinary income up to $3,000 a year, or $1,500 for a married person filing a separate return, and the rest carries forward to later years [1]. That cap is written into section 1211(b) of the Internal Revenue Code [6].

What does the worthless route need?

Section 165(a) allows a deduction for any loss sustained during the tax year and not made good by insurance or otherwise [5]. In 2023 the IRS Office of Chief Counsel applied that section to a cryptocurrency that had crashed [4]. It read a token that still trades on at least one exchange as not worthless. It read a holder who still controls the token as not having abandoned it.

Then the statute closes the door for an individual. The memo reads a worthlessness or abandonment loss on crypto as a miscellaneous itemized deduction, and it noted the suspension of those deductions through 2025 [4]. That end date is gone. Section 67(g) now allows no miscellaneous itemized deduction for any tax year beginning after 2017, and the 2025 amendment struck the clause that had ended the suspension [8].

So the worthless route, for an individual filing a US return, produces a deduction the statute does not allow. The memo is still the closest statement of what the IRS reads as worthless and abandoned. The statute is what decides whether the number reaches the return.

Why does a token that still trades matter?

Here is the problem with a dead bag. Most rugged tokens never reach zero. The contract keeps running, some pair on some exchange keeps printing a price, and the holder can still send the tokens somewhere. The memo reads each of those facts against the worthless route: a price means not worthless, and control means not abandoned [4].

A sale does not care about any of that. The token can be trading at dust and the sale still closes the position on a date with a receipt behind it. That is the whole difference between the two routes for a token that is not quite dead.

What about a token that migrated?

A migration is not a sale and it is not worthlessness. Old tokens go in, new tokens come out, and the question becomes whether that swap was itself a taxable exchange and what basis the new tokens carry. This site has not checked that question against a primary source, so this guide does not answer it. A migration guide is planned, and until it ships the registry claims the migration route for no token.

What records does either route need?

The receipt is the whole game. A loss needs a cost basis, the date the tokens were acquired, the date they were disposed of, and what came back, and Form 8949 asks for each of those [3]. A loss that cannot be documented is a loss that cannot be deducted.

• Exchange statements. The buy side of the basis, with fees, in US dollars.
• Wallet history. Every transfer in and out, with the date and the transaction hash.
• The sale receipt. The disposal date, the proceeds if any, and the fee paid to get out.
• The exchange listing. For a worthless claim, evidence of whether any market still quoted the token on the date claimed.