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Yes. For U.S. federal income tax purposes, a realized loss on cryptocurrency held as a capital asset generally offsets capital gains under the usual capital-loss rules. A price drop alone does not count: you generally must sell or otherwise dispose of the asset. If your total capital losses exceed your capital gains, the excess deduction against other income is generally limited to $3,000 ($1,500 if married filing separately); unused losses generally carry forward.
This article covers individuals and U.S. federal taxes. The result can depend on the tax year, the asset and transaction, and your circumstances; state tax rules may differ.
When does a cryptocurrency loss count for taxes?
The IRS treats digital assets as property for federal income tax purposes, so general property transaction rules apply. When you hold cryptocurrency as a capital asset, those rules generally let you recognize a capital gain or loss when you dispose of it. The IRS explains this in its digital-asset FAQ.
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If your cryptocurrency is worth less than you paid but you still hold it, that decline generally is not a realized capital loss. You generally need a sale or another disposition that produces a recognized loss. Do not assume every event involving an asset has the same tax result as a sale; the treatment depends on the transaction.
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Calculate the result for each disposition
In general, gain or loss is the difference between the amount realized and your adjusted basis. The IRS says to account for applicable transaction costs under the relevant rules. Keep the calculation in U.S. dollars and retain records supporting both basis and proceeds. See the IRS digital assets filing guidance and digital-asset FAQ.
How capital losses offset gains
Combine your capital gains and losses under the capital-gain and loss rules. A net capital loss can offset capital gains. The $3,000 limit is not a cap on losses used to offset gains; it applies to the general deduction of net capital losses exceeding gains against other income.
- If your capital losses are less than your capital gains, they reduce those gains.
- If your capital losses exceed your capital gains, you can generally deduct up to $3,000 of the excess against other income for the year, or $1,500 if you are married filing separately.
- Unused capital losses generally carry forward. The IRS Topic no. 409 explains netting, the excess-loss limit, and carryovers.
Does the holding period change the result?
It changes whether a capital gain or loss is short-term or long-term. The IRS classifies a digital asset held as a capital asset for one year or less before its sale or exchange as short-term; a holding period of more than one year is long-term. The period starts the day after acquisition and ends on the disposition date. See the IRS digital-asset FAQ.
Track the acquisition and disposition dates for each asset. Do not classify every crypto gain or loss alike based only on when you began using an account or service.
How do you report cryptocurrency capital losses?
For capital transactions, the IRS identifies Form 8949 for reporting sales, exchanges, and other dispositions of digital assets held as capital assets. Capital gains and deductible losses are then summarized on Schedule D (Form 1040). The IRS says digital-asset transactions must be reported whether or not they result in taxable gain or loss. Broker information and the transaction type can affect the reporting details; check the instructions for your tax year. See the IRS filing guidance.
Keep records that support your calculation
Maintain records of purchases, receipts, sales, exchanges, and other dispositions, including:
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- Dates and times of transactions
- Units of digital assets involved
- Fair market values in U.S. dollars
- Adjusted basis and amount realized
- Records of applicable transaction costs
These records help substantiate the dates, basis, and proceeds used to calculate each gain or loss.
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The IRS distinguishes between FAQ Part I, which generally covers virtual-currency transactions completed before January 1, 2025, and Part II, which generally addresses digital-asset transactions on or after January 1, 2025. Use the IRS material and forms applicable to the tax year you are filing.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Are crypto losses subject to wash-sale rules?
Do not assume cryptocurrency losses are categorically exempt from wash-sale restrictions. The applicable treatment can depend on the asset, transaction, and tax year, and the IRS material cited here does not establish a rule for every digital-asset arrangement. Verify current authority for your specific situation or consult a qualified tax professional.
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