Crypto romance scams are one of the most devastating forms of online fraud—not just financially, but emotionally, too. Victims often send their entire life savings to people they trust, only to find out the relationship was fake and the money is gone.
If this happened to you, you may be wondering: Can I deduct the loss on my taxes?
Here’s what you need to know, especially in light of the IRS’s 2025 memo on theft losses involving crypto scams.
What Is a Crypto Romance Scam?
A crypto romance scam typically involves a scammer posing as a romantic partner—often on a dating app, social media platform, or messaging forum. These scammers are patient. They build trust over time, sometimes communicating for weeks or months before ever asking for money.
Eventually, they present an urgent need. Maybe it’s a medical emergency, a travel crisis, or a sudden investment opportunity. The victim, believing the relationship is real, sends cryptocurrency or other funds to help. But the scammer disappears shortly after.
Is the Loss Deductible on Your Tax Return?
Crypto that was lost in a scam can sometimes be deducted as a theft loss if certain conditions are met. Romance scams do not qualify for a theft loss deduction. However, you may be able to claim a capital loss with the help of an experienced tax professional.
Theft Loss Deduction: Romance Scams Don’t Quality
In most cases, crypto that was stolen through a romance scam is not deductible as a theft loss.
The IRS issued a memo in March 2025 that outlines how theft losses are treated under IRC § 165, the section of the tax code that governs deductions for losses. According to the memo, a theft loss is only deductible if certain conditions are met.
To qualify, the loss must:
- Result from a criminal act (such as fraud or theft)
- Involve a transaction entered into for profit
- Be considered unrecoverable by the end of the tax year
- Be claimed in the year of discovery
- Be properly documented, including efforts to report the crime
In a crypto romance scam, the second point—profit motive—is the main issue.
The IRS’s Position
The memo includes an example of a taxpayer who sent funds from both retirement and brokerage accounts to help someone they believed they were dating. The scammer claimed they needed money for medical expenses, then disappeared once they received the funds.
The IRS concluded that this type of loss is not deductible, because the funds weren’t transferred as part of an investment or profit-seeking activity. They were transferred based on a personal relationship—even if it was based on fraud.
That makes it a personal loss, not a business or investment loss. Under current law, most personal losses, including thefts, are not deductible.
Can You Claim a Capital Loss for Crypto Lost in a Romance Scam?
Possibly—but it depends on how the transaction is structured and reported.
If you can’t deduct the loss as theft under IRC § 165, you may still have the option to treat the crypto you sent as sold for $0. This can create a capital loss, which may be used to offset other capital gains. Any excess can be deducted against ordinary income (up to the annual limit).
This approach is especially relevant if:
- You sent crypto directly to the scammer’s wallet
- You have documentation showing the transfer and lack of any return value
- You’re not eligible for a theft loss because the transfer wasn’t profit-motivated
Pro Tip: This treatment falls into a legal gray area. The IRS hasn’t issued specific guidance on applying capital loss treatment to crypto scam losses in non-investment contexts, so the position could be scrutinized. Still, some taxpayers choose to file this way, particularly when no other deduction is available.
It’s important to work with a tax professional who understands the risks and reporting requirements if you decide to take this route.
Need Help with Crypto Tax Reporting After a Scam?
If you’ve lost crypto to a scam, we can help you understand how to properly report it—what qualifies for deduction, what doesn’t, and how to stay compliant. At Gordon Law, we’ve helped crypto investors navigate the legal maze since 2014. We’ll walk you through what to include and how to minimize audit risk.
Speak to our experienced crypto tax attorneys to get clarity on how to move forward.
