Can you write off crypto that's almost worthless? What the IRS says about worthless and abandoned coins

Plenty of tokens have collapsed to a tiny fraction of what people paid for them. A natural question at tax time is whether you can write off a coin that’s now worth almost nothing, without selling it. The IRS’s lawyers looked at exactly that question in 2023, and their answer was no.

This guide explains what the IRS memo says, why abandoning crypto doesn’t help either, what changed in 2025, and how people usually realize a loss instead. For the general rules, see US crypto tax.

The IRS memo

Chief Counsel Advice 202302011, released on 13 January 2023, answered a question from IRS staff about crypto that had substantially declined in value. The facts were simple:

• An individual bought a token in 2022 at $1.00 per unit, as a personal investment, on an exchange.
• By the end of 2022, each unit was worth less than one cent.
• The token still traded on at least one exchange, and the owner could still sell, exchange or transfer it.
• The owner claimed a deduction for 2022, saying the tokens were worthless or abandoned.

The memo’s conclusion was no: the owner hadn’t sustained a deductible loss under section 165 of the tax code.

The memo notes that it shouldn’t be used or cited as precedent. It isn’t binding on taxpayers, but it shows how the IRS’s lawyers read the law.

Why it wasn’t “worthless”

Section 165 allows a deduction for losses that are evidenced by closed and completed transactions, fixed by identifiable events and actually sustained during the year. A fall in value on its own isn’t enough: the memo says there has to be some step that fixes the loss, such as a sale or abandonment.

Worthlessness can be that event, but only if the asset is wholly worthless. In the memo’s case:

• each unit still had liquidating value, even if less than a cent;
• it still traded, so it could rise in value in the future.

So the token wasn’t wholly worthless. The memo added a footnote: at the start of 2023, fifteen tokens worth less than a cent each were still actively traded, with market values ranging from about $77 million to over $4.4 billion.

The memo also explains that the special rule for worthless securities, section 165(g), doesn’t apply, because the token wasn’t a share, bond or other security in the list that rule covers.

Why it wasn’t “abandoned”

The memo sets out what abandonment requires: an intention to abandon the property, plus an affirmative act of abandonment. Intention alone, or simply not using the asset, isn’t enough, and for intangible property some express act is needed.

In this case, the owner kept the tokens to the end of the year, could still sell them, kept control over them and took no affirmative step to abandon them. So there was no abandonment loss either.

The deduction would have been blocked anyway

The memo went further. Even if there had been a section 165 loss from worthlessness or abandonment, for an individual it would be a miscellaneous itemized deduction. Section 67(g) of the tax code disallowed those deductions for 2018 through 2025.

That suspension is now permanent. Public Law 119-21, signed on 4 July 2025, amended section 67(g) in its section 70110, removing the end date, with an exception for certain educator expenses. The change applies to tax years beginning after 31 December 2025.

The memo also notes that casualty, theft and wagering losses follow different rules. For crypto lost to scams and theft, see crypto scam losses and tax.

How people realize a loss instead

The memo explains the general rule that sales, exchanges and other dispositions of digital assets can produce gain or loss, and that someone who isn’t in the business of dealing in crypto generally has a capital gain or loss on a sale or exchange.

That’s why the practical route for a collapsed token is to sell it or swap it, even for a tiny amount:

• the capital loss is the difference between what you paid (your basis, including fees) and what you received;
• capital losses offset capital gains, and up to $3,000 a year of any excess ($1,500 if married filing separately) can reduce other income, with the rest carried forward;
• you report the sale on Form 8949 and Schedule D.

See crypto tax-loss harvesting for how losses offset gains and carry forward.

A worked example

Say you bought 10,000 tokens for $10,000, plus $50 in fees, so your basis is $10,050. The token collapses to half a cent. You sell all 10,000 for $50 and pay a $5 fee, so your proceeds are $45.

• Your capital loss is $10,050 − $45 = $10,005.
• If you have no capital gains that year, you can deduct $3,000 against other income.
• The remaining $7,005 carries forward to future years.

Holding on and hoping the tokens become “worthless” would give you nothing to deduct while they still trade, according to the memo’s reasoning.

When you can’t sell

Sometimes there’s no market at all: a token is delisted everywhere, a project disappears, or tokens are stuck on a platform. The memo’s reasoning turned on the fact that the token still traded, so a token with no liquidating value and no prospect of value is a different case. The memo doesn’t decide it, and the deduction limits described above would still matter. Keep evidence of what happened, and get professional advice.

The same goes for crypto held on an exchange that went bankrupt: what you can claim depends on the facts and on what you recover. See crypto exchange bankruptcy.

Records to keep

• what you paid for each token, with dates and fees;
• evidence of its value at year end;
• records of any sale or exchange, including tiny ones;
• evidence of delisting or the project shutting down, if that’s what happened.

Brokers now report many crypto sales on Form 1099-DA. See Form 1099-DA explained.