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Experts told Cointelegraph that if you live in the right country and lost digital assets because of a bug or hack, you might be able to claim them as a tax loss. This is good news for unlucky crypto investors who want to make the best of a bad situation.
After hearing that more than 8,000 Solana wallets had been hacked and that an estimated $8 million in crypto had been stolen because of a security breach in Web3 wallet provider Slope's network, this may be some much-needed comfort.
The Solana hack, and it’s possible tax consequences: A thread 🧵 https://t.co/JnYMrkB8qJ
— Crypto Tax Calculator (@CryptoTaxHQ) August 3, 2022
In an email to Cointelegraph, Shane Brunette, the CEO of Australia-based CryptoTaxCalculator, confirmed that cryptocurrency lost through a hack or an exploit could be reported as a tax loss in some places.
This means that the amount you paid for the asset(s) in the first place can be used to cancel out other capital gains.
When asked if there are similar rules in tax jurisdictions other than Australia, where the tax software company is based, Brunette said: "No."
"Many countries have laws that allow for these kinds of tax deductions. However, you should work closely with a local tax professional and make sure you keep enough proof of the loss."
Danny Talwar, who is in charge of taxes at Koinly, told Cointelegraph the same thing. He also stressed that in Australia, you must show proof that the cryptocurrency you lost was in your possession at the time it was stolen.
"To claim a capital loss for hacked crypto, you'll need to show proof to the Australian Tax Office (ATO) that the crypto is lost and was in your possession."
Talwar also said that it was important for the tax authority to have enough proof that the cryptocurrency can't be recovered. He suggested using blockchain explorer tools like Etherscan and Solscan to find proof of the hacker's destination address, which could also show proof of a large pool of hacked funds.
Under Australian tax law, any proof of a hack must also include the dates when private keys were lost or found, as well as all of the wallet addresses that go with them.
A blog post by CryptoTaxCalculator says that U.S. crypto investors can no longer claim hacked crypto as a tax loss because of tax reforms that were passed in 2017.
Things are a little more complicated for people in the UK and Canada, but investors can still claim a tax loss if they are willing to follow the steps set by their country's tax office.
This year alone, hackers and other bad people have stolen about $2.6 billion worth of digital assets. Cross-chain bridge attacks were responsible for 69 percent of the total amount stolen.
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