Bitcoin Forum

Here is a good example of a "hack" that happened. I'm not saying it is fake or is true.

https://bitcointalk.org/index.php?topic=686275.0

In the U.S., as I am aware, if you incur losses in your investments you can claim that as tax deductable assuming it is at a market loss (your investment or buy price is higher than the current value of the stock etc).

How would this apply should someone lose $750,000 in Bitcoin due to a hack and attempt to get some sore of tax break if any?

Any thoughts?

Yes, but...
Calling Bitcoin 'property' (like the IRS wants to) adds confusion:

"You can deduct theft losses on your taxes, in theory, but it can be extremely difficult to qualify for this write-off.

First, you need to figure the fair market value of the stolen items or your adjusted basis in the property (the original cost plus any improvements), whichever is lower. In your case, that's the depreciated value of the car -- the cost to buy a used car like the one that was stolen, not the cost to replace it with a new car.

The same is true for the electronics, CDs and clothes that were stolen. You can deduct only the cost to buy used items in similar condition, which is probably a lot less than $4,550. And you cannot deduct the cost of renting a car, even though you needed to rent the car after yours was stolen, says Barbara Weltman, contributing editor to J.K. Lasser's Your Income Tax 2008. "Only property losses are deductible," she says."
http://www.kiplinger.com/article/taxes/T056-C001-S001-how-to-deduct-theft-losses.html

Is the value of "used BTC" anywhere near the same as new ones?  :D

How would one prove he lost $750k? I can prove some bitcoins got sent somewhere, but I can't prove they were stolen, neither can you, smoothie.

lets see how mark karpeles's  'theft' investigation goes and use it as precedent

Really good point, R r the 5th. Bitcoin network transactions would be hard to prove, but a failed/hacked exchange might be possible, especially if you were a "verified" customer.

I don think you can call bitcoin as a " property “ if the gov does approve it to the law and or admit it .

That was why I asked the question...there is plausibly deniability in either argument.

Also why I said "hacks" in the title of this thread. Anyone can cry wolf.

FYI: The IRS calls BTC "property", so that is very relevant for a tax question.

Good luck getting an auditor to accept it (and trying to claim a loss like that is a surefire audit flag).  Also, hope you aren't trying to deduct 750k based on market value in losses on coins you acquired at lower cost basis.

Sounds about right, you will be a severe risk of an IRS audit.


...and if the current prices are lower, then you can only report the current value, not what you really paid, according to the info posted here: https://bitcointalk.org/index.php?topic=688687.msg7811829#msg7811829  (assuming BTC is "property" as per the IRS)

Very interesting stuff to consider given all of the "hacks" that have gone on and how one would try to get a tax break on those "losses". There is much for current CPA firms to learn from Bitcoin.

In fact I can see CPA firms altogether shrinking on a global scale due to Bitcoin's ability to always keep a public ledger of account. Yeah you may need some people to filter the data and get its meaning or "value" out of it. But you don't need an entire firm to do that.

I know I used to work for one and they are working in the dark ages when it compares to the technology Bitcoin offers.

The idea of seeing the outcome with Mark and MTGOX will prove interesting as a precedent for future "hacks" etc.

If I had to put a pulse on where the Bitcoin market and ecosystem is in comparison to the Internet...I'd say we are in 1995 times.

Choo choo!  :D

I wrote off my loss from the CoinLenders loss as a capital loss on my taxes this year.  I ended up not having to pay taxes, so it ended up not making a difference on way or another on my taxes.  This happened before the IRS made its ruling that bitcoins are property not currency, so the rules may be different now than they were then.  But I think as long as you write it off as a loss at using the cost basis rather than the current price, you should be okay.

Typical disclaimer: I am not a lawyer or tax attorney, so it would be wise to consult one yourself before trying this yourself. 

If someone steals property from your home and the theft is not covered by insurance then, as per my understanding you are able to deduct this loss via theft on your taxes.

If you can deduct the current market price, or if you would need to use the acquisition price is an entirely different question. A quick glance at turbo tax appears that if the property stolen was for personal use then you muse use the basis (cost) of the property stolen and that there are other limitations as well.

I think you can claim a loss up to $3000 max per year. You may be able to roll the remainder over to the next years but i am not entirely sure

I'm still waiting for the Australian Taxation Office position on Bitcoin before I see how I write my bitcoin loss..

I would be very tempted to send the maximum amount I could detuct as theft to a cold storage address (first sending it through some other virgin addresses) w/ private key in safety deposit box, claim it "stolen", then years later when retired and old and gray, sanitize it and use it to buy drinks whatever from the local bar while watching football with the guys.

Getting ripped off every year I suppose might raise some eyebrows...

I'm almost positive you can take some of the loss as a write off but I'm not sure what the max limit is per year.  I'd think it's either $3000 or the amount of your income for a given year.  Also, sure you can claim as much as you want, however if you get audited you'll need things like police reports where you reported the theft, etc.

I'm not sure but I'd think your best bet would be to contact the I.R.S. they would be able to answer better then most here I'd assume.  I'd suspect if someone did try and claim the loss their would be a denial which would lead to some sort of appeal.  That is how I expect it would go down on a state level at least not so sure about federal. 

I think it is a great question and would like to know and I'm sure others who have lost big over the past few years are interested.