The IRS considers cryptocurrency to be property for tax purposes. Depending on the situation, cryptocurrency is taxed as:
- Ordinary income, if for example, it earns a return for the holder from an income stream (similar to interest) or
- A capital gain or loss from a sale of property after its value has increased or decreased.
- If merely bought and held, it’s not taxed until something is done with it, such as disposal.
After the 2017 Tax Cuts and Jobs Act was passed, theft losses are no longer deductible on Form 4684. If your cryptocurrency was stolen and classifies as a theft loss, it's unlikely that you can write this off.
You can read more about the details of these rules in the IRS guidance in Pub 547, although the IRS has not made an explicit ruling on this topic.
See also the TurboTax Cryptocurrency Guide.
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