Rugged or worthless token: can you claim a tax loss?

Software, not tax, legal or investment advice. Estimates may be wrong. Verify with a tax professional.

This guide concerns US federal taxes for individuals holding tokens for investment, including 2025 returns filed in 2026 and current 2026 limitations. “Rugged” describes an experience, not a tax classification. A collapsed market, a stolen asset, a completed exchange, and an abandoned asset can require different analysis.

There is no universal deduction simply because a wallet app displays zero. First establish what happened, whether you still own or control the units, and whether anything of value remains. Ask a tax professional to determine the legal category and reporting year before treating the event as a deductible loss.

A steep decline is not enough

In Chief Counsel Advice 202302011, the IRS considered cryptocurrency that retained a small value and remained under its owner's control. The taxpayer had not established worthlessness or abandonment. The memorandum is nonprecedential Chief Counsel Advice, not a ruling that decides every token's facts.

For your records, distinguish a quoted price of zero from a missing quote. Save evidence showing whether trading was possible, whether transfers were restricted, and whether any recovery rights remained. Do not change the acquisition cost because a market-data provider stopped tracking the mint.

A screenshot helps show what an app displayed at a particular time. It does not, on its own, establish the legal event or prove there was no remaining value anywhere. Keep the underlying transaction history alongside it.

A completed disposition has a different calculation

Here is a hypothetical completed transaction, not a recommendation to arrange one. This guide does not recommend transactions to create losses. Assume Lee held a token lot with a documented $800 basis. In an actual arm's-length disposition, Lee received $3 of consideration. Ignore fees, and assume a deductible capital loss is otherwise available.

The arithmetic is $3 minus $800, or a $797 capital loss. It is not an $800 loss just because the remaining proceeds were small. If Lee still held the tokens instead, this particular disposition calculation would not exist.

A failed swap is not evidence that this example occurred. Nor does a transfer to another wallet Lee owns establish an arm's-length disposition. If your records show a purported dust sale, preserve the consideration, counterparty information available to you, transaction signature, and any continuing rights. Ask a tax professional about related parties, circular arrangements, and whether the disposition has substance.

Worthlessness and abandonment are separate questions

26 USC 165 provides the loss framework and limits individual deductions. Its worthless-security provision has a specific statutory definition. Do not assume that an ordinary token qualifies merely because people call it a security in some other context.

IRS Publication 544 (2025) describes abandonment as permanent relinquishment with intent to end ownership, generally without a sale or exchange. That general discussion does not establish that hiding a token, deleting a wallet app, losing keys, or sending units to a supposed burn address meets the requirements in your case.

We could not verify a universal IRS procedure that turns a rugged Solana token into an allowable abandonment or worthlessness deduction. Ask a tax professional whether an identifiable event occurred, what evidence proves it, how any loss is characterized, and which limitations apply. Software should preserve those questions rather than manufacture a disposal row.

The 2026 deduction restriction matters

Older discussions sometimes say the miscellaneous-itemized-deduction restriction ends after 2025. That is not the current statutory position. The amended 26 USC 67 continues the disallowance into 2026; the former subsection (g) restriction applied in 2025, and the current text appears in subsection (h).

This matters because a claimed ordinary investment abandonment or worthlessness loss may face that restriction even if an economic loss is clear. It does not mean all capital losses are disallowed. Classification comes first, and the interaction should be reviewed by a tax professional. Do not read the older Chief Counsel memorandum's end date as a promise of a deduction in 2026.

Theft is not another name for a falling price

If assets left your control through an alleged theft, prepare a factual chronology. Record unauthorized transfers, communications, recovery efforts, and any compensation. If you instead retained tokens whose market collapsed, explain that separately. The two histories should not be merged because both caused financial harm.

Section 165 contains distinct restrictions for different loss categories. Note that 26 USC 67(b)(3) lists certain theft losses under section 165(c)(2) as not miscellaneous itemized deductions, so the 2026 restriction described above does not reach every loss the same way. A professional must assess whether the facts establish theft under the relevant law, the proper year, and the effect of possible recovery. This guide cannot determine those issues from a transaction signature or a project nickname.

How a capital loss affects the return

An allowable capital loss is combined with other capital gains and losses. IRS Publication 550 (2025) explains annual deduction limits and carryovers. A $797 capital loss is not automatically a $797 refund, and an unused loss may require carryover records.

By its terms, 26 USC 1091 covers stock or securities. A pending bill, H.R. 10357 (introduced September 14, 2026), would extend wash-sale rules to traded digital assets for dispositions after that date if enacted as written; check its status with a tax professional. Ask a tax professional about the asset's classification and any relevant replacement transactions.

For an actual capital disposition, consult the 2025 Form 8949 instructions with your preparer. A different loss category may require a different reporting route; do not force every economic loss onto that form.

Build a useful evidence packet

Include original acquisition records, the mint address, wallet history, and supported basis. Add dated evidence of the failure and a clear description of what you can still do with the units. List any compensation, recovery claims, or remaining rights separately.

Keep a short unresolved-questions sheet. For example: Was there a completed disposition? Did ownership end? Was any value recoverable? Which tax year contains the relevant event? These are factual and legal questions that should remain visible until a qualified reviewer resolves them.

Sources

Updated 2026-10-31 · US federal rules only · Software, not tax, legal or investment advice. Estimates may be wrong. Verify with a tax professional.