Worthless or Nearly Worthless Crypto: Why Holding a Dead Token Gets You No Deduction

You bought a token at a dollar. It now trades at a fraction of a cent. Economically the money is gone. For tax purposes, as long as you are still holding it, you have not lost anything yet.

That is not a quirk. It is the IRS position, laid out in CCA 202302011, and it is backed by a statutory change in 2025 that makes the usual workarounds unavailable. The practical answer is almost always to sell. Here is why.

What CCA 202302011 says

In a January 2023 Chief Counsel memorandum, the IRS considered a taxpayer who bought a cryptocurrency in 2022 at $1.00 per unit as an investment. By year end the token was worth less than one cent but still traded on at least one exchange, and the taxpayer could still sell or transfer it. The taxpayer claimed a 2022 loss, arguing the units were worthless or abandoned.

The memo concluded no loss was allowed, for three reasons:

• No closed transaction. Section 165 allows losses evidenced by closed and completed transactions and fixed by identifiable events. A mere decline in value is not a loss.
• Not worthless. The token still had liquidating value and continued to trade, leaving the possibility it could rise again.
• Not abandoned. The taxpayer kept ownership and control and took no affirmative act of abandonment.

The memo is not precedent and cannot be cited as such, but it states the IRS's reading of section 165 and its regulations.

Why the worthless securities rule does not help

Investors in stock have section 165(g), which treats a security that becomes worthless as sold on the last day of the year, producing a capital loss. The memo points out that section 165(g)(2) defines a security as stock, rights to stock, and certain corporate or government debt instruments. Cryptocurrency is none of those, so section 165(g) does not apply.

The miscellaneous itemized deduction problem

Even if a crypto investor could show a token was truly worthless or abandoned, the memo noted a second barrier. For individuals, section 67(b)(3) treats section 165(a) losses as miscellaneous itemized deductions unless they are casualty, theft or wagering losses. Miscellaneous itemized deductions were suspended for 2018 through 2025 when the memo was written.

That suspension is now permanent. The One Big Beautiful Bill Act, Pub. L. 119-21, amended section 67 so that, in its current form as section 67(h), no miscellaneous itemized deduction is allowed for any taxable year beginning after December 31, 2017, with no end date. So a worthlessness or abandonment loss on investment crypto, outside a trade or business, generally produces no deduction at all.

Selling is the clean answer

A sale is a closed and completed transaction. Selling a token, even for almost nothing, produces a capital loss under the ordinary capital loss rules: losses offset capital gains, and up to $3,000 of excess loss per year ($1,500 married filing separately) offsets other income under section 1211(b), with the rest carried forward. A capital loss from a sale is not a miscellaneous itemized deduction.

• Sell to an unrelated buyer, normally on an exchange or decentralized exchange where the token still trades.
• Do not sell to a relative or a controlled entity. Section 267 disallows losses on related-party sales. See selling crypto to family.
• Account for fees. If the fee to sell exceeds the token's value, the economics are odd, but the fee is part of the transaction. See gas fees.
• Keep the transaction record. The sale date fixes the year of the loss.

Because the wash sale statute is written for stock or securities, buying the token back after selling it generally does not disallow the loss, though there is rarely a reason to want it back.

When there is no market at all

Sometimes a token cannot be sold: the contract is broken, liquidity is gone, or every venue delisted it. In that case the worthlessness analysis in the memo is the relevant one: a subjective determination of worthlessness plus objective evidence that the asset has no liquidating value and no potential future value. Even if that test is met, the section 67(h) problem for individual investors remains. For a token held in a trade or business, the analysis differs, because business losses are not miscellaneous itemized deductions.

Businesses that hold tokens as part of a trade, such as a market maker or a developer holding tokens it uses in operations, should analyze their losses under the business rules rather than the investor rules discussed here.

If a token is truly unsellable, document everything: delistings, contract failures, the absence of any trading venue, and your efforts to sell. Then get advice on whether any deduction is available on your facts.

Rug pulls and fraud

When a token collapses because its developers drained the liquidity or disappeared with investors' funds, the facts may support a theft loss rather than a worthlessness argument. Theft losses are excluded from the miscellaneous itemized deduction category by section 67(b)(3), and a profit-motivated theft loss can be deductible in the year of discovery once there is no reasonable prospect of recovery. Whether a rug pull is a theft depends on state law and the evidence. See lost or stolen crypto.

Spam and dust tokens

Wallets collect tokens nobody asked for. If a token arrived unrequested and has no market value, you likely never had income from it and have no basis in it, so there is nothing to deduct. There is no reason to sell it for tax purposes. Do keep a note of how you treated it, and be careful interacting with unknown token contracts, which are a common vector for wallet-draining scams.

Tokens on a failed platform

Crypto stuck on a bankrupt exchange is a different problem. The asset may still have value through the bankruptcy process, and you may have a claim against the estate. Timing and character depend on how the case resolves. See the existing guide on bankrupt exchange tax consequences.

Theft is different

If the token was stolen or you were defrauded, the theft loss rules apply instead, and theft losses are carved out of the miscellaneous itemized category. Profit-motivated theft losses can be deductible. See lost or stolen crypto.

A worked example

You bought 100,000 units of a token for $20,000 in 2024. In 2026 it trades at $0.0005, so your position is worth $50.

• Holding through year end: no loss for 2026, under the reasoning of CCA 202302011.
• Selling all 100,000 units for $50, less a $5 fee: amount realized $45, capital loss $19,955. Long-term, since you held more than one year.
• If you have no capital gains, $3,000 offsets other income in 2026 and $16,955 carries forward.

The difference between holding and selling is the entire deduction. Forty-five dollars of proceeds unlocks nearly twenty thousand dollars of loss.

Past years

If you claimed a worthlessness or abandonment deduction on a prior return for a token that was still trading, the IRS position in CCA 202302011 suggests the deduction was not allowable. If you held a token that you could have sold and never did, there is no loss to claim for that year; the loss belongs to the year you sell. See claiming missed crypto losses for when an amended return makes sense.

Going forward, review your holdings every fall. Any position you consider dead, but that still trades, is a candidate for a sale before December 31 so the loss lands in the current year. Pair those losses with gains you have already realized, and remember that up to $3,000 of net capital loss can offset other income each year with the rest carried forward. A short annual review turns dead tokens into usable deductions instead of permanent clutter.

The rule is simple. Selling realizes the loss. Holding does not. If a token is dead to you, let the sale make it official.

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