Celsius Losses

Forum|Forum|2 years ago
November 15, 2023
1 reply
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Hello. I lost digital assets in the Celsius bankruptcy debacle/case. How do these losses get calculated? Thx

Ask the Experts - Crypto - Nov 2023

Andrew_W

Employee Tax Expert

Hi @maonodera,

Sorry to hear you're caught up in this!

This is a complicated scenario, and tax treatment depends on the final disposition of the bankruptcy. Once the bankruptcy is finalized, any assets that are completely lost or not recoverable will be deemed worthless.

From https://www.taxpayeradvocate.irs.gov/news/tas-tax-tip-when-can-you-deduct-digital-asset-investment-losses/:

"Worthless or Abandoned

Unlike a sale of a digital asset investment that results in capital gain or loss, the loss from your digital asset investment becoming completely worthless is an ordinary loss. You should note that the asset must be completely worthless, not nearly worthless, for this loss to recognized. An ordinary loss from a worthless or abandoned investment is a miscellaneous itemized deduction in the year of worthlessness/abandonment but is not deductible on your tax return because the Tax Cuts and Jobs Act of 2017 disallows miscellaneous itemized deductions for tax years 2018-2025."

Unfortunately, if the assets are completely lost in this manner, you will be unable to deduct them due to the disallowed miscellaneous itemized deductions through 2025.

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Jmh0523

Level 2

The bigger question is, if you can end up writing off what we don't recover, how do we go about doing that? Are we supposed to file an amended return and realize the loss on the day of the bankruptcy when the value of our assets was locked in and dollarized (what it was all worth vs how much we get back today and the difference between the two being the loss)? That happened in July 2022. They gave us a dollarized value of our crypto assets. We are going to get back a small portion of our assets in kind, they won't be giving us dollars but crypto back. Maybe 30%.

We are supposed to find out around the end of this month/beginning of next. Would we address all of this in next year's filing for 2024?

RobertB4444

Level 15

As @Andrew_W says above, you will not be able to write off a digital asset loss. That option has been removed until at least 2025, if then.

When you were able to write off the miscellaneous deduction you would have written off the exact dollar value that you originally invested in the digital asset and you would have written it off effective on the date the bankruptcy was finalized.

@Jmh0523

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