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Navigating crypto taxation can be a tricky endeavour, especially when you’re dealing with unfortunate events like exchange shutdowns, wallet hacks, and scams. These events are all too common in the fast-paced world of crypto, but reporting them properly can make a big difference when it comes to claiming a loss.

In addition to external threats, many crypto investors have also experienced the heartbreaking loss of their assets due to internal mishaps. Private keys can easily be misplaced, sending crypto to the wrong wallet can be a costly mistake, and even the failure or damage of a cold storage device can result in permanent loss of funds. 

If you've experienced any of these situations, don't worry - this guide will help you understand the steps you need to take to report your stolen or lost crypto and get the most out of your claim. 

Do I have to pay taxes on Lost, Stolen, or Hacked Crypto?

If you store your cryptocurrency in a hot wallet, such as an exchange wallet or lower security platforms, you may be at risk of a cyber attack and might lose your cryptocurrency.

Once your cryptocurrency is stolen, you no longer have control over it. And from a tax perspective, you are not responsible for what happens to those assets afterwards. The question then becomes whether you can claim the losses at your cost basis when your cryptos were stolen or hacked from exchanges or wallets.

Whether or not you can claim a tax deduction for losses from stolen or lost crypto depends on the tax laws of your country. In some countries, such losses are not deductible, while others have more lenient laws, such as Norway and Australia, that allow for such deductions. It's important to consult with a tax professional who is knowledgeable about the laws in your country to determine your eligibility for claiming these losses on your tax return.

Reporting lost or stolen crypto in Norway?

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If you're a Norwegian investor who has lost or had their crypto stolen, there's good news. The Skatteetaten has provided clear guidelines on how to report these losses on your tax return, and they're more sympathetic to investors than many other tax authorities.

In Norway, you can claim lost or stolen crypto as a capital loss, provided you have the evidence to support your claim. This evidence should demonstrate that you've made reasonable efforts to recover your lost investment. If you're able to do so, you can offset these losses against your capital gains.

The Skatteetaten says “If you have been scammed, the loss may be deducted if you can provide documentation or substantiate that the investment is finally deemed to be lost. This means that you must have tried to recover all or part of your investment.”

To report a loss due to a scam, you can enter it in the "Other costs linked to other income" field in the "Minimum standard deduction and other deductions for expenses linked to employment and other income" card.

According to Skatteetaten, relevant documentation for claiming a loss due to a scam may include your transactions related to the scam, emails or other correspondence with the scammer, a police report, and any mention of the scam in the media or other sources. However, to minimize the chances of a dispute, it's essential to keep other important documents, such as:

• The dates you received and lost your assets
• The wallet address associated with the private key
• Proof of the costs you incurred to acquire the lost or stolen crypto
• Proof of the amount of crypto in the wallet before you lost access or had it stolen
• Proof that you own the wallet or are in possession of the hardware that stores it
• Proof of any transactions you made to the wallet

Reporting lost or stolen crypto in Denmark?

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The Danish Tax Authority, also known as Skattestyrelsen, has provided clear guidelines on how to report lost or stolen crypto. Unfortunately, their belief is that losing access to your crypto wallet does not necessarily mean losing ownership of the asset. This means that many crypto investors in Denmark may not be eligible for a tax deduction if they've lost their wallet key or lost their crypto due to a scam, according to the Danish Tax Authority's ruling in SKM2018.104.SR.

However, there is a ray of hope. If you apply for a binding assessment, you can make a claim for your losses. To do this, you'll need to substantiate the permanent loss of access to your cryptocurrency with documentation and records. If you're successful in making a binding case, you can write off your losses as a special case.

Keep in mind that making a binding case can be complicated, so it's important to seek assistance from tax experts and legal consultants to ensure your case is strong enough to be considered by the tax authorities. By following the guidelines and seeking professional advice, you can navigate the complexities of crypto taxation in Denmark and potentially claim any eligible losses.

Reporting lost or stolen crypto in Sweden?

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When it comes to lost or stolen cryptocurrency in Sweden, the Skatteverket has clear guidelines that you should be aware of. Let's say, if you lose your private key or your cryptocurrencies are stolen in a hacker attack, you won't be required to pay any taxes on them.

However, if you suffer a loss due to lost or stolen crypto, you cannot use this loss to offset your capital gains taxes. In other words, you need to exclude the corresponding cost basis while calculating your taxable gains or losses. Unfortunately, this loss cannot be used to reduce your tax liability or offset your profits.

Although it may be disappointing that you can't claim a tax deduction for losses incurred from lost or stolen crypto, it's crucial to understand these regulations to avoid potential penalties. By maintaining accurate records and seeking guidance from a tax expert, you can navigate the intricacies of crypto taxation in Sweden and ensure compliance with Skatteverket's policies.

Reporting lost or stolen crypto in the US?

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The IRS recognizes two types of losses for capital gains - casualty losses and theft losses. Casualty losses, such as losing access to your wallet or sending crypto to the wrong address, used to be tax deductible but are no longer unless there is a federally declared disaster. Theft losses, such as when your crypto is stolen from your wallet or your exchange is hacked, are also no longer tax deductible. 

According to IRS guidance, casualty losses were deductible before the 2017 tax reform. However, now only federally declared disasters can be deducted, which is unlikely to apply to crypto. This means that if you lost your private keys or made a mistake, you cannot claim it as a capital loss.

Thief losses from crypto are also no longer tax deductible since the tax reform. If you lose crypto due to a hack or scam, you cannot claim it as a loss and offset it against your gains. The best option is to write it off and exclude it from your calculations.

However, if you are able to substantiate your ownership of the assets and provide documentation from the exchange that specifies the amount lost in the hack, it may be possible for you to deduct losses incurred before 2017.

Reporting lost or stolen crypto in Canada?

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The Canadian Revenue Agency (CRA) has not provided any clear guidelines on how taxpayers should report lost or stolen cryptocurrency as a capital loss. However, taxpayers can deduct capital losses due to theft for other assets, so it is possible that the same rules apply to cryptocurrency.

In Canada, the adjusted cost basis method is used to calculate capital gains and losses for tax purposes. This means that if you lose your cryptocurrency, you may only be able to claim a loss for your original investment, not any potential profits.

For example, let's say you bought 10 ETH for $1,000 a few years ago, and this year you lost them when their value was $20,000. In this case, you may only be able to claim a loss of $1,000 on your tax return.

However, it's important to keep in mind that claiming a loss for lost or stolen cryptocurrency can be complex. It's best to seek guidance from an experienced accountant before attempting to report it on your tax return.

FAQ

1. Can I claim stolen or lost crypto as a capital loss?

The answer to this question doesn't have a simple answer since it depends on where you live. In most countries, tax authorities do not permit taxpayers to claim stolen or lost crypto as a capital loss. 

However, a few countries, such as Australia and Norway, have more lenient laws on this matter, which allow you to claim stolen or lost crypto as a capital loss. However, keep in mind that such claims may require a rigorous verification process to ensure their legitimacy.

2. Do I need to report stolen crypto on my tax return?

The answer to this question depends on the tax laws in your country. In general, most countries require taxpayers to report all sources of income and capital gains, including those from cryptocurrency. If you've experienced a theft or loss of cryptocurrency, you may be able to claim it as a capital loss on your tax return, subject to certain conditions and limitations.

Tax laws surrounding cryptocurrency are still evolving and can vary widely from country to country. It's always best to consult with a tax professional or accountant who is familiar with the tax laws in your country and can advise you on how to accurately report your cryptocurrency transactions on your tax return.

3. My cryptocurrency was destroyed. Can I claim a loss?

It is true that cryptocurrency itself cannot be destroyed, but there are scenarios where you may lose access to your cryptocurrency holdings. For instance, if the crypto wallet where you stored your Bitcoin holdings gets destroyed in an accident or if you lose your private keys, you may permanently lose access to your cryptocurrency.

If you suffer a personal casualty loss, such as the loss of your crypto wallet, you may not be able to claim a tax deduction on it, depending on the tax laws in your country.

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All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!