FTX Loss Tax Deduction: 2026 Status

#Quick context

FTX collapsed in November 2022 and filed for Chapter 11 bankruptcy. About $8B to $10B or more of customer money went missing. Founder Sam Bankman-Fried was convicted on multiple fraud counts in November 2023.

For affected customers, this is the biggest crypto tax-loss event in U.S. history. The bankruptcy trust pays back a share of what your claim was worth in November 2022 dollars, not today’s crypto value. As of March 31, 2026, the trust reported 96% to 100% back for most customer groups, and more payments may still come. Check the trust’s latest notice for your group.

That payout structure makes the tax picture messy. Was your loss “theft,” or just an investment loss? When does the loss count for tax purposes? Does getting part of your money back change your deduction?

#The three claim paths

The three paths differ in three ways. How much you can deduct. Which form you file. How much IRS attention each one draws. Here is the quick comparison.

#Path 1: Capital loss (most conservative)

This is the simplest treatment. Your deposit was an investment. It became worthless, or you sold it at a loss.

Mechanics:

• Find your cost basis. That is your purchase price plus fees for the crypto you had at FTX.
• Work out your loss in the year it is final. That is usually the year you sell the claim, withdraw coins, or get your last bankruptcy payment. The IRS has not said when an FTX claim loss becomes final, and the worthless-security rule does not cover crypto. Talk with your preparer before you pick a year. If you get nothing back at all, you may not be able to deduct the loss unless it counts as theft. Ask your preparer about the theft-loss rules.
• Your capital loss equals cost basis minus whatever you recovered.
• Report it on Schedule D / Form 8949.
• It counts as long-term or short-term based on how long you held it.

Limits:

• Capital losses offset capital gains first.
• Any extra loss, up to $3,000 a year, offsets ordinary income.
• What is left carries forward to future years.

Best for:

• Customers with large capital gains elsewhere to offset.
• Customers who want the simplest, lowest-audit-risk option.
• Smaller losses, under $20K, where the $3K/yr offset clears the loss in a reasonable time.

#Path 2: §165(e) theft loss

If FTX management stole customer funds, your loss may qualify as a theft loss under IRC §165(e).

Requirements:

1. A theft actually happened, under state criminal law.
2. The loss can be measured.
3. You know the date you discovered the theft.

Mechanics:

• You can deduct it against ordinary income, with no $3K/yr cap.
• Report it on Form 4684 (Casualty and Theft Losses).
• Tax law bans most personal theft losses. But losses on investments you made to earn a profit are still allowed.
• The “discovery date” sets the tax year. That is usually the year you discovered the theft, not the year FTX failed.

Strategic considerations:

• A theft-loss claim argues the FTX collapse was theft, not just a failed investment.
• The SBF conviction makes that argument stronger.
• Filing a proof of claim in the bankruptcy can affect whether you qualify. If you can still expect money back, the IRS says that part of the loss is not final yet. You wait until you know your final amount. Then you deduct what is left.

Best for:

• Large losses, where the $3K/yr capital-loss offset would take many years.
• Customers with strong evidence of fraud by FTX management.
• Customers whose tax preparer or attorney is comfortable taking this position.

#Path 3: §165 Ponzi-scheme safe harbor (Rev. Proc. 2009-20)

For losses that qualify as Ponzi-style fraud, Revenue Procedure 2009-20 gives you a simpler, faster path:

Mechanics:

• The safe harbor math uses what you put in, not your net loss. You take 75% (or 95%) of your qualified investment. Then you subtract what you were paid back in the year of discovery. Money paid back later is handled in the year you get it.
• You use 95% if you do not go after third parties, such as banks, auditors or advisers. You use 75% if you do. Filing a claim in the FTX bankruptcy itself does not count as going after a third party.
• Report it on Form 4684, with a specific safe-harbor election.
• You can deduct it against ordinary income, not just capital gains.
• The clock starts when the lead person is formally charged with a crime. That means an indictment, an information, or a criminal complaint that meets IRS tests. A news report or an SEC case is not enough. For FTX, that was 2022, not 2023. The conviction year does not matter for the safe harbor.

Eligibility:

• The safe harbor only applies if your fraud fits the IRS Ponzi definition. You also must have made the election on your on-time return for the discovery year. The IRS has not said FTX fits. For FTX, that year is 2022. If that return is closed and you never made the election, you may be stuck with the regular theft-loss rules. A refund claim may be too late. Get a written position before you rely on this.
• You must be a “qualified investor” under the Rev. Proc. definition. Most retail customers qualify.

Best for:

• Customers whose facts fit the Rev. Proc. 2009-20 pattern.
• Large losses, where deducting 75-95% in the discovery year makes a big tax difference.
• Customers comfortable being described as Ponzi-scheme victims.

#The bankruptcy proceeding complication

FTX’s bankruptcy pays customers back a large share of their pre-collapse USD value. That affects all three paths:

For capital loss: the money you get back lowers your deductible loss. You only deduct the net amount: cost basis minus recovery.

For §165(e) theft loss: getting money back can create a “reasonable prospect of recovery” that, in past cases, blocked the loss. Because so much is being recovered, the IRS may treat the FTX loss as not final until the recovery finishes.

For Ponzi safe harbor: how much you recovered affects whether you elect 75% or 95%. You use 95% if you do not go after third parties, such as banks, auditors or advisers. You use 75% if you do. Filing a claim in the FTX bankruptcy itself does not count as going after a third party. Rev. Proc. 2009-20 covers this case directly.

Operational guidance for 2025-2026:

For ETS clients with FTX losses, here is our standard approach:

1. Document the original deposit. Cost basis, dates, currency, USD value.
2. Document the bankruptcy payout. Date received, amount, percentage of your claim.
3. Work out the net loss. Cost basis minus recovery.
4. Choose the path. We write a position memo weighing capital loss, theft loss, and Ponzi safe harbor against your specific facts and risk tolerance.
5. File the position. Form 8949 for capital loss, or Form 4684 for theft or Ponzi, on the right year’s return.
6. Keep the paperwork. Bankruptcy proof of claim, account statements, settlement statements.

#Common scenarios

Here is how the path choice plays out across four real loss sizes. Net loss is cost basis minus what the bankruptcy recovered.

#Scenario 1: Small retail customer, $10K loss, recovered $9K

Total loss: $1K. That is cost basis $10K minus recovery $9K. Capital-loss treatment is simple here. Report it as a long-term capital loss on Form 8949, in the year of recovery. The $1K offsets capital gains first. If you have no gains, it offsets $1K of ordinary income instead.

#Scenario 2: Mid-size investor, $150K loss, recovered $130K

Total loss: $20K. The capital-loss path gives you $3K a year against ordinary income. The leftover carries forward about 6 years or more, if you have no capital gains to offset. The theft-loss path lets you deduct the full $20K against ordinary income in the discovery year. That is the better tax outcome.

#Scenario 3: Whale, $5M loss, recovered $4.5M

Total loss: $500K. The capital-loss path is painfully slow: at $3K a year, it would take 166 years to use up the offsets. You need the theft-loss or Ponzi-safe-harbor path for a deduction that actually matters now. Under the safe harbor, you claim the loss in the year the federal government charged the lead person with fraud. For FTX that was 2022, not 2023. The safe harbor math uses what you put in, not your net loss. You take 75% (or 95%) of your qualified investment. Then you subtract what you were paid back in the year of discovery. Money paid back later is handled in the year you get it.

#Scenario 4: Customer who never filed proof of claim

Cost basis $50K, no recovery. If you never filed a claim, you still have to prove you cannot get the money back. Skipping the proof-of-claim filing does not, by itself, waive your claim. It also does not remove a “reasonable prospect of recovery.” Under the Ponzi safe harbor, the cap is 95% of what you put in.

But here is the strategic problem: FTX has been paying back 90%+ of claims. So for most customers, skipping the proof-of-claim filing was a costly mistake.

#What’s still uncertain

Several FTX-specific tax questions are still unsettled:

1. The “discovery year” for §165(e). Was discovery November 2022, when FTX collapsed? November 2023, when SBF was convicted? Or when the bankruptcy plan was confirmed? Each year produces a different tax outcome.

2. Whether the bankruptcy is “complete enough” to determine the loss. Under §165, a loss must be “fixed and determinable.” While recovery is still ongoing, the loss is not truly final yet.

3. Allocation between USD basis and crypto basis. Say you deposited 1 BTC worth $20K, but FTX’s bankruptcy values it at the petition-date price of $18K. How do you reconcile your basis against the recovery? No clear answer exists yet.

4. State tax conformity. Some states follow the federal §165 treatment. Some do not. That needs its own, separate look.

We could not find FTX-specific IRS guidance. A 2025 IRS Chief Counsel memo on investment-scam theft losses (CCA 202511015) offers helpful reasoning. It is not binding, and it is not about FTX. Expect formal guidance over time, the way the IRS eventually issued Madoff-specific guidance after that fraud.

#What ETS does for FTX-affected clients

For ETS clients with FTX exposure:

1. Reconstruct deposit history. We pull every deposit you made to FTX: dates, amounts, asset types, and the USD value at the time. Tools like CoinTracker can help recover this data.

2. Document the bankruptcy claim. We confirm your proof of claim was filed, track what you have received, and check your current claim status.

3. Position memo. A written analysis of which deduction path fits your specific facts. We lay out a conservative position and a more aggressive one. Each one comes with citations.

4. Tax-return implementation. We file the right forms in the right years. Amended returns when needed, to claim losses in earlier years.

5. Maintain audit-defense file. We keep documentation of every decision, plus the authority behind it. If the IRS ever challenges the position, the response is already built.

A standard FTX-loss positioning engagement runs $2K to $5K, depending on complexity and whether amended prior-year returns are needed.

#Common questions

Should I have filed a proof of claim? Yes. Filing a proof of claim is how you take part in the bankruptcy and receive any payout. Even if it complicates the theft-loss position, the recovery is meaningful: 90%+ for most customers.

What about FTX-EU customers vs. US customers? The U.S. and offshore FTX entities run separate bankruptcy cases. Recovery rates may differ between them. Tax treatment for U.S. taxpayers is the same no matter which entity held your funds.

Can I deduct losses from Celsius / Voyager / BlockFi too? Each case is different. The Celsius founder pleaded guilty to fraud and was sentenced in 2025. Check the facts for Voyager and BlockFi on their own.

Does the loss affect my future-year crypto cost basis? For tokens you did not lose, held elsewhere, no. For the FTX tokens specifically, the loss is recognized, and the basis drops to zero once you receive your recovery.

What if my account had multiple cryptos? Treat each asset on its own. Figure the cost basis for each one, and allocate the recovery’s fair value to each based on how the bankruptcy valued it.

Is this still a high-audit-risk position? Theft loss and Ponzi safe-harbor claims do attract IRS attention, especially without solid documentation. Capital loss is the lowest-risk option. For larger claims, professional preparation and a written position memo matter a lot.

---

Do you have FTX losses? Or losses from Celsius, Voyager, BlockFi, or a similar crypto bankruptcy? If you want help getting the tax position right, the Discovery call is the right next step. We have handled FTX-loss positioning for multiple clients. We quote each engagement based on complexity.