IRS Proposes Deduction Framework for Crypto Losses: New Tax Rules in 2023

• Researchers from Indiana University and the University of Maine have proposed a framework for deducting crypto losses from the IRS.
• The study suggests that crypto losses should be treated differently than other capital assets, and that they should only be deductible against cryptocurrency gains.
• The current state of US tax law concerning cryptocurrency is somewhat nebulous, but IRS publication 551 explains instances in which taxpayers can fully deduct their losses.

Tax Law Researchers Advocate for Deducting Crypto Losses

Recent research conducted by universities in Indiana and Maine has proposed a framework to the Internal Revenue Service (IRS) for deducting crypto losses. The study advocates treating such losses as separate from other capital assets, allowing them only to be deducted against cryptocurrency gains.

Current State of Tax Law Concerning Cryptocurrency

Currently, US tax laws are somewhat unclear when it comes to taxation of cryptocurrency gains and losses. According to IRS publication 551, certain situations allow taxpayers to fully deduct their crypto losses; these include having one’s crypto stolen or deliberately abandoning their assets through burning or other destructive means.

Proposed Framework Advocated by Researchers

The researchers’ paper calls for a new tax framework wherein crypto losses can only be deducted from cryptocurrencies gains. They point out that due to its riskiness, the government is essentially sharing in those risks by offering deductions against capital gains – thus suggesting that it would make more sense for those deductions to apply solely against crypto gains instead.

Practical Implications of Proposed Framework

If this proposed framework were adopted by the IRS, it could potentially have significant implications on how individuals and businesses report their taxes related to cryptocurrency investments. It would also simplify some of the complexities associated with understanding current US tax laws concerning cryptocurrencies, providing greater clarity on when and what types of deductions are allowed under different scenarios.


In conclusion, this recent study offers an alternative approach to taxation when it comes to cryptocurrency investments that could potentially benefit both investors and the government alike if adopted by the IRS. By isolating crypto assets from other capital deductions where losses are concerned, investors may be better able to track profits and losses resulting specifically from their holdings in digital currencies – helping them make better-informed decisions about managing their investments going forward.