To contact him directly with additional questions, click this link Chris Whalen, CPA
I was scammed for several thousand dollars. If I filed a police report and have correspondence with the exchange, can I write that amount off as a loss?
Usually, we need more information, but I will detail some common scenarios.
Scenario 1 – You invested in a Cryptocurrency or stock or NFT that became worthless, usually through an exchange.
You would show this as a capital loss on your tax return. Remember, though, you are limited to taking $3,000 in capital losses. You can use these losses to offset capital gains. But due to the $3,000 capital loss cap, it may take several years for you to get the full deduction for your investment loss.
Important Note – If you simply deposited fiat currency in an exchange that was stolen and never exchanged that fiat currency for cryptocurrency before it was stolen, you may, unfortunately, fall into Scenario 2 below, where you cannot deduct your losses.
Scenario 2 – You unknowingly transferred fiat currency from your bank account to a criminal’s bank account or to what seemed like a legitimate online account or fund.
You never purchased anything with it. This is considered a theft and can NO LONGER be claimed as a tax deduction
Note – If criminals got access to your account through no fault of your own, your bank’s insurance and other protocols may reimburse you.
Scenario 3 – Ponzi Scheme
IRS definition of “Ponzi” schemes is where the party perpetrating the fraud receives cash or property from investors, purports to earn income for the investors, and reports to the investors income amounts that are wholly or partially fictitious. Payments, if any, of purported income or principal to investors are made from cash or property that other investors invested in the fraudulent arrangement. The party perpetrating the fraud criminally appropriates some or all of the investors’ cash or property.
If you were a victim of a Ponzi Scheme, you can deduct those losses on your tax return but will need to document the exact circumstances in case the IRS or any state tax agency requests such documentation.