Lost crypto to a scam or a hack? Whether you can claim a tax loss in the US, UK and Canada

Losing money to a crypto scam is painful enough. A common follow-up question is whether the loss can at least reduce your tax bill. The answer depends heavily on where you pay tax, and, in the US, on why you sent the money in the first place.

This guide summarizes what the IRS, HMRC and the CRA have said. It’s general information: losses like these are an area where professional advice is worth getting.

United States

The IRS memo on scam victims

In March 2025, the IRS Office of Chief Counsel released a memo (CCA 202511015) on whether victims of common scams can claim a theft loss under section 165 of the tax code. It walks through five scenarios from 2024 and notes that the actual scam may vary and that applying the advice depends on each taxpayer’s specific facts.

Its general conclusions:

• The victims suffered a theft loss, because the scams involved an illegal taking of property that’s criminal theft under state law.
• The loss is taken in the year the theft is discovered and there’s no reasonable prospect of recovery.
• The amount of the loss is the victim’s basis in what was stolen: generally what they paid, not a higher market value.
• The loss is deductible only if the money was lost in a transaction entered into for profit.

Which scams pass the profit test

In the three deductible cases, the memo found a profit motive: the victims moved their money to safeguard their existing investments or to make new ones. In the romance and kidnapping cases, the money was sent as part of a non-investment scam, so there was no profit motive and the losses are personal theft losses.

What counts is why the money was sent. A “romance” that ended with you investing on a fake crypto platform may look more like the pig butchering scenario than the romance one, but that’s a question for a tax professional who knows your facts.

When is there “no reasonable prospect of recovery”?

Timing matters. The memo explains that a theft loss isn’t sustained, and no part of it is deductible, if at the end of the year there’s still a reasonable prospect of recovery:

• A reasonable prospect exists when you have genuine claims against someone, such as a bank, a platform or the scammer, and there’s a substantial possibility they’ll succeed.
• You judge it on the facts at the end of the tax year. You don’t have to prove there’s no possibility at all of getting money back, nor be an “incorrigible optimist”, in the words of the court cases the memo quotes.
• If you’re pursuing a claim, for example through a bank’s fraud process or a bankruptcy, the deduction may have to wait until it’s clear how much, if anything, you’ll recover.

The Ponzi safe harbor, and why it rarely fits

The IRS has an optional safe harbor for losses from Ponzi schemes (Rev. Proc. 2009-20). It can allow a deduction even while recovery is still possible, but only in limited circumstances: the scheme’s lead figure must have been the subject of a state or federal criminal complaint, with either an admission of the crime or a receiver or trustee appointed, or the scheme’s assets frozen. In the memo’s scenarios, the scammer’s identity was unknown and no one was charged, so the victims couldn’t use the safe harbor. See crypto Ponzi schemes.

Money taken from a retirement account

Some victims are persuaded to withdraw money from an IRA or other retirement account to send to the scammer. The memo notes that amounts distributed from an IRA are generally included in the income of the person receiving them, and that in cases of fraudulent withdrawals, courts look at whether the taxpayer requested and authorized the distribution. It also warns that scammers often falsely claim that the money will be rolled over into a new account without tax consequences. If this happened to you, get professional advice before filing: you may owe tax on the withdrawal, and whether a theft loss offsets it depends on your facts. See crypto in your 401(k) or IRA.

Why the personal limit matters

Personal casualty and theft losses were limited by the 2017 tax law for 2018 through 2025: they could only be deducted when attributable to a federally declared disaster. The IRS says this limit has now been made permanent, with the scope expanded from 2026 to include losses from state-declared disasters. In practice, a scam loss that doesn’t pass the profit test generally still can’t be deducted.

How it’s reported

According to the memo, a theft loss from a transaction entered into for profit is reported on Form 4684, Section B (business and income-producing property). Keep evidence: messages, transaction records, reports to the police, the FBI’s IC3 and your bank, and any answer about recovery.

For how pig butchering scams work, see pig butchering scams.

United Kingdom

HMRC’s position is short and strict. In its Cryptoassets Manual, it says it doesn’t consider theft to be a disposal, because the victim still owns the stolen asset and has a right to recover it. As a result, victims of theft can’t claim a loss for Capital Gains Tax.

HMRC adds some distinctions:

• If you paid for tokens and never received them, you may not be able to claim a capital loss.
• If you did receive tokens and they later became worthless, you may be able to make a negligible value claim. It isn’t allowed if the tokens were already worthless when you acquired them.
• If you lose your private key, that isn’t a disposal either, since the tokens still exist. But if it can be shown there’s no prospect of recovering the key or accessing the tokens, a negligible value claim could be made.

How a negligible value claim works

A negligible value claim treats the tokens as sold and immediately bought back at the value you state, which may be £nil. That locks in a capital loss you can report. Because tokens are pooled, HMRC says the claim must cover the whole pool of that token, not individual tokens. The claim states the asset, the value and the date of the deemed disposal. See UK crypto tax for how pooling works.

Canada

The CRA’s guidance for crypto users is brief: “If you’ve been scammed, you may be able to claim a loss.” It encourages people to keep up with its scam alerts and to get advice from reputable tax professionals.

Remember how capital losses work in Canada: you can deduct half of a capital loss (an allowable capital loss), but only against taxable capital gains, not against other income like employment income. See Canada crypto tax.

What to do after a loss

1. Report the scam quickly to the police and your national reporting service. See crypto scams and where to report them.
2. Keep every record: wallet addresses, transaction IDs, screenshots, emails and the replies you get about recovery.
3. Don’t pay “recovery” services. They’re often a second scam.
4. Get professional tax advice before claiming a loss, especially in the US, where the facts decide the outcome.
5. Protect what’s left: move remaining funds to a new wallet with a new seed phrase if you think your keys were exposed. See seed phrase security.