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RE: Was your Bitcoin stolen? Potential Tax Benefits for your Loss!
These guys seem to disagree with your hypothesis. Sorry I can't point you to the exact point in the interview where they describe why, but any US citizens doing taxes on crypto earnings should give it a full listen anyways!
https://soundcloud.com/unchainedpodcast/the-tax-rules-that-have-crypto
I am upvoting this comment so that tax reform update is elevated to the top of this thread
I listened briefly to the 40-45 minute mark of the podcast link and believe I know what you are referring to. Intsead of going point by point and parsing time stamps from an external website, let me just summarize my general reading of the new tax law for the benefit of readers of this article in the future:
My article was written on September 27, 2017 for tax years in 2017 and prior. The Tax Cuts and Jobs Act ("Tax Reform") was signed into law on December 22, 2017 and, for the most part, impacts tax years 2018 and forward.
Section 11044 of the Tax Cuts and Jobs Act added Section 165(h)(5), a new paragraph to the code section. Essentially, under this new (h)(5), Tax reform is preventing deductions for, on a temporary basis for 2018 through 2025, personal casualty losses. It is important to realize, this disallowance does not include theft losses and does not include trade business casualty losses or profit-motive casualty losses. There is still ability to deduct theft losses and casualty losses related to trades/businesses or related to a transaction entered into for profit (which most investment activities are entered into for profit). Of course, contact your personal tax advisor because proving and quantifying the loss is not as simple as I am laying out, but it is definitely possible and worth exploring with an advisor. I am not a personal advisor to anyone reading this.
I construct these articles from countless hours of research, I read code sections and other primary/secondary source guidance in coming up with these conclusions Here is the proof of my point in the instant case:
https://www.law.cornell.edu/uscode/text/26/165
Takeway
I am on here to hash out the tax issues related to this unclear area of tax law, in an open source environment. I welcome that you provided a source that potentially could have challenged my position and, in general, glad that we improved the overall value of this article for future readers by updating the discussion for the 2018 considerations. The discussion of "personal" casualty limitations did warrant an update.
FYI - Ways to fall into the "personal" bucket include routinely using crypto for buying personal items like a TV. I have a separate article discussion how losses could end up being personal in nature from a general perspective. Again, many, many users of cryptocurrency fall into the investor bucket, or the theft bucket, versus the "personal casualty loss bucket" - but they should contact a advisor to be 100% sure on that point if they have used their wallet for personal transactions especially; not just take my word for it.
Thanks,
CryptoTax
Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This article and response does not create a client relationship with any reader.