1040 Digital Asset Question

[hxtudou]

So in 2023 fell for a crypto scam.

Bought crypto and send to a "scam fake exchange". The fake exchange reports fake profits/trades. Essentially the money is lost.

From reading online, seems any transaction on the scam exchange is fake. No real gain.

https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_fraudulentdigitalasset ​ ​https://support.metamask.io/hc/en-us/articles/[phone number removed]75-Fake-crypto-exchange-scams

So want to know how to answer the digital asset question in 1040.

I do not believe I did any of these. Think I can check "No".

Am I correct? 

For example, check “Yes” if at any
time during 2023 you:
• Received digital assets as payment
for property or services provided;
• Received digital assets as a result
of a reward or award;
• Received new digital assets as a
result of mining, staking, and similar activities;
• Received digital assets as a result
of a hard fork;
• Disposed of digital assets in exchange for property or services;
• Disposed of a digital asset in exchange or trade for another digital asset;
• Sold a digital asset; or
• Otherwise disposed of any other financial interest in a digital asset

[hxtudou]

I know for sure I did not receive any digital asset for payment, reward, award. Or did any mining, staking.

Nor do I believe I did any real selling or exchanges since the scam exchange is all fake. Fake profit/trade.

The only thing I am not sure is "Otherwise disposed of any other financial interest in a digital asset"

Not sure if sending the crypto to scam exchange site counts as "otherwise disposed of".

[hxtudou]

Reading through Publication 544, I think sending crypto to a scam exchange does not fit under any of these "disposition" of asset

Publication 544 (2022), Sales and Other Dispositions of Assets | Internal Revenue Service (irs.gov)

You dispose of property when any of the following occur.

• You sell property.

• You exchange property for other property.

• Your property is condemned or disposed of under threat of condemnation.

• Your property is repossessed.

• You abandon property.

• You give property away
  
  
  

[PatriciaV]

If you purchased cryto and no longer own it, you either lost it, abandoned it, or gave it away. In any case, the loss is not deductible. So you have nothing to report.

Common cryptocurrency theft losses include the following:

• Stolen Coins
• Hacked Wallets
• Hacked Exchange Accounts

Post-2017 after the 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.

[hxtudou]

@PatriciaV 
Thank you for your response.  It is helpful.

Can answer "No" to the 1040 digital asset question. Nothing to report.

At any time during 2023, did you (a) received (as a reward, award, or payment for property or services); or (b) sold, exchanged, or otherwise disposed of a digital asset

For the theft scam losses,  cannot claim a deduction in the tax return.

Do I understand you correctly?

[PatriciaV]

Yes, answer "no" to the question about digital asset transactions.