Guides › Stolen or Lost Crypto: What IRS Pub. 547 Says on Theft

Stolen or Lost Crypto: What IRS Pub. 547 Says on Theft

Short answer: IRS Publication 547 (2025) says that for tax years beginning after 2017, individuals' casualty and theft losses of personal-use property are deductible only if attributable to a federally declared disaster. It also says theft losses incurred in a transaction entered into for profit may be deductible, and that victims of certain financial scams may claim a theft loss under section 165 if three conditions apply. For tax years beginning after 2025, the limit on personal casualty and theft losses was made permanent by Public Law 119-21 and now also covers losses from qualifying state-declared disasters (IRS, “Casualty loss deduction expanded and made permanent”, extract). Pub. 547 (2025) does not mention cryptocurrency, but it points victims of financial scams to IRS Chief Counsel Advice 202511015, whose examples include an investment scam involving cryptocurrency.

Theft (Pub. 547)

• A theft is the taking of money or property with intent to deprive the owner, illegal under the law of the state where it happened. You do not need a conviction.
• Theft includes burglary, embezzlement, extortion, larceny, robbery, and taking by fraud or misrepresentation if illegal under state or local law.
• The pub says the loss is figured in the year the theft is discovered.

Financial scams (Pub. 547)

Victims of certain scams may claim a theft loss deduction if:

1. the loss results from criminal conduct classified as theft under applicable state law;
2. there is no reasonable prospect of recovery of the stolen funds; and
3. the loss arises from a transaction entered into for profit. The pub gives Ponzi-type investment schemes as an example, with Rev. Rul. 2009-9 and Rev. Proc. 2009-20 as the IRS guidance.

Lost (not stolen) property

The pub says the simple disappearance of money or property is not a theft. An accidental loss can qualify as a casualty only if it results from an identifiable event that is sudden, unexpected or unusual. We found no IRS guidance on lost private keys or forgotten passwords.

What the IRS memo says about crypto (CCA 202511015)

In CCA 202511015 (March 14, 2025), the IRS Office of Chief Counsel concluded that victims who lost money in a scam they entered into for investment purposes, including an investment scam in cryptocurrency, sustained a theft loss deductible under section 165(c)(2) in the year they discovered the theft and had no reasonable prospect of recovery. The memo states that the amount of the loss is limited to the victim's basis in the stolen funds, and that losses from romance and kidnapping scams, which were not transactions entered into for profit, are personal casualty losses and are not deductible. The memo is general advice and says its application depends on the taxpayer's specific facts; Chief Counsel Advice is not a ruling you can rely on as precedent. Keep full records and speak to a qualified tax professional before claiming a loss.

Basis, not market value

For income-producing property that is stolen, Pub. 547 figures the loss from your adjusted basis, not from the decrease in fair market value; for crypto this means your cost basis, not the price on the day of the theft.

Reporting

The memo says the loss is reported on Form 4684, Section B; we did not read the form's instructions.

Records

The pub says you need to show there was a theft, when you discovered it, and the property's value; our records checklist lists what to keep.

Related

Crypto losses: $3,000 limit · Year-end records · No 1099-DA? Still report

FAQ

Is a lost wallet a capital loss? Not addressed by the pub; selling at a loss is a different event (see the loss limit page).

Does Form 4684 apply? The pub says you file Form 4684 for casualties and thefts; we did not read the form.

What we could not verify

• Lost private keys, forgotten passwords or tokens that become worthless: no IRS rule read.
• Section 165, the Form 4684 instructions, Rev. Proc. 2009-20 and Rev. Proc. 2011-58 were not read in full.
• How the rules apply to crypto stolen from a hacked exchange (depends on facts).
• Pub. 547 is for 2025; the 2026 version is expected. The state-declared-disaster rule for 2026 and later was seen as an IRS page extract and the law text, not read in full.

Sources (official)

• IRS, Publication 547 (2025), Casualties, Disasters, and Thefts (PDF dated February 2, 2026) — https://www.irs.gov/publications/p547 (PDF read 17 October 2026)
• IRS, Chief Counsel Advice 202511015 (March 14, 2025) — https://www.irs.gov/pub/irs-wd/202511015.pdf
• IRS, Casualty loss deduction expanded and made permanent (updated September 15, 2026; search extract) — https://www.irs.gov/forms-pubs/casualty-loss-deduction-expanded-and-made-permanent

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Not tax advice. Examples use made-up figures. Nothing here has been reviewed by a tax professional. We may earn commissions from affiliate links where marked; see the disclosure.