Are Crypto Losses on FTX and BlockFi a Tax Write Off?

Did you lose access to cryptocurrency held on FTX or BlockFi? 

It’s possible that you could write off your losses on your tax return. However, the rules are stricter than many investors expect, and the timing depends on when, and whether, the bankruptcy pays you back. 

In this guide, we’ll break down everything you need to know about how lost cryptocurrency from an exchange bankruptcy should be reported on your tax return. 

What happened to FTX and BlockFi? 

FTX was one of the world’s largest crypto exchanges, and FTX US was its US sister exchange. The company had close ties to BlockFi, a crypto lender. 

After reports of liquidity issues and mismanagement of customer funds in November 2022, FTX and BlockFi halted customer withdrawals. 

On November 11, 2022, FTX officially filed for bankruptcy. BlockFi followed on November 28, 2022. 

In November 2023, FTX founder Sam Bankman-Fried was convicted of defrauding FTX customers, and in March 2024 he was sentenced to 25 years in prison. 

Will I regain access to my cryptocurrency? 

Both bankruptcies now have court-approved plans, and customers are being paid back through them. 

• FTX: The bankruptcy court confirmed FTX’s plan on October 8, 2024, and it took effect on January 3, 2025. Customer claims were valued at crypto prices on the November 2022 filing date, and FTX is paying them in cash, plus interest, rather than returning crypto.
• BlockFi: The bankruptcy court confirmed BlockFi’s plan on October 3, 2023, and it took effect on October 24, 2023. BlockFi has been making distributions to customers as it winds down.

Can I write off my crypto losses if I lose access to my crypto? 

Generally not while your crypto is still tied up in the bankruptcy. The IRS’s Taxpayer Advocate Service says that while your crypto is tied up in bankruptcy proceedings, you don’t have a closed and completed transaction, so you can’t claim a loss yet. 

Once the bankruptcy pays out, the IRS treats a settlement you receive in exchange for your crypto, however small, as a sale. You report a capital gain or loss on Form 8949 for the year you receive it, equal to what you received minus your cost basis (usually what you paid for the crypto). 

Simply calling your crypto ‘worthless’ doesn’t create a deduction. If you get nothing back at all, the IRS treats the loss on worthless or abandoned crypto as a miscellaneous itemized deduction (CCA 202302011), which individuals can’t claim. 

Depending on your situation, a few other routes may apply:

• Selling your bankruptcy claim: If you sell your claim before the bankruptcy pays out, the difference between what you receive and your cost basis is generally a capital gain or loss.
• Theft loss: If the collapse involved criminal fraud, you may be able to claim a theft loss on Form 4684, Section B. In 2025, the IRS Office of Chief Counsel concluded that some crypto scam victims who invested to make a profit could take this deduction (CCA 202511015). It’s an itemized deduction, so it only helps if you itemize, and you can’t claim it while you still have a reasonable prospect of recovery.
• Bad debt: If you lent your crypto to the platform, for example through an interest account, and your claim becomes completely worthless, you may be able to deduct it as a nonbusiness bad debt, which is treated as a short-term capital loss.

Capital losses can offset your capital gains and up to $3,000 of ordinary income for the year ($1,500 if married filing separately). Additional losses can be rolled forward into future tax years. 

If you already claimed a loss for an earlier year and later receive a distribution, you may have to report it as income in the year you receive it. 

If you were an individual US customer of FTX US: FTX’s bankruptcy team has said it treats the plan’s January 3, 2025 effective date as a taxable exchange of your claim (FTX tax FAQ). Under that approach, you’d recognize a capital gain or loss for 2025, equal to the difference between your cost basis and the value of your claim on that date, regardless of when your payments arrive. The part of each cash payment that FTX treats as interest (9% a year from the bankruptcy filing) is reported as taxable interest on Form 1099-INT. FTX also says that if your allowed claim still wasn’t fully paid after 2025, you’ll likely owe tax on that interest as it accrues, even before you receive it, reported on Form 1099-OID. 

FTX notes that how tax law applies to its plan isn’t certain. Its timing can also differ from the general rule above if your payments arrived after 2025. 

Because every bankruptcy and every investor’s situation is different, you should consult a crypto tax professional with questions on the specifics of your situation.

You may have heard that crypto lost in an exchange bankruptcy can be claimed as a casualty loss. An exchange bankruptcy generally isn’t a casualty, and personal casualty losses aren’t deductible outside declared disasters, so this route usually doesn’t work. 

For more information, check out our guide to lost & stolen cryptocurrency. 

How do I report my cryptocurrency taxes?

If you’re looking for an easy way to report your cryptocurrency taxes, CoinLedger can help. CoinLedger integrates with FTX, FTX.US, BlockFi and other exchanges and blockchains to help you report your taxes in minutes. 

Get started today with the crypto tax software trusted by 700,000 investors across the globe. 

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