Can you write off a worthless or rugged memecoin?

Usually not the way you want to. While you still hold a token that trades at any price at all, the IRS position is that it is not worthless and you have no deduction. The route that works is disposing of the position to realise a capital loss. Claiming worthlessness or abandonment while holding runs into two separate walls.

This article describes US federal tax law for the 2026 tax year and was last reviewed on 31 August 2026. The UK in particular is materially more generous here; other jurisdictions are covered at the end.

The controlling document: CCA 202302011

The IRS Chief Counsel Advice memorandum CCA 202302011 addresses this fact pattern almost exactly, which is why it dominates any serious discussion of the question.

A taxpayer bought a cryptocurrency at $1.00 per unit in 2022. By year end it was worth under $0.01, but remained actively traded on at least one exchange with the taxpayer retaining the ability to sell. The taxpayer claimed a loss under IRC 165. The conclusion was no deduction, on two independent grounds.

Worthlessness fails. "The mere diminution in value of property does not create a" deductible loss. Because the asset retained some liquidating value, however minimal, and remained actively traded with the potential to appreciate, it was not essentially valueless with no reasonable prospect of recovery. In trader terms: a token quoted at $0.0000001 has a value of $0.0000001, and that is not zero.

Abandonment fails. An abandonment loss requires two elements — intent to abandon, and an affirmative act constituting an express manifestation of abandonment. Continuing to hold the units, retaining the ability to sell them and exercising control defeat the second entirely. Deciding a token is dead is not an affirmative act. Neither is ignoring it.

A Chief Counsel Advice memorandum cannot be cited as precedent and binds nobody. It is still the clearest available statement of how the IRS analyses this fact pattern, and a position taken against it is taken knowingly.

The second wall: IRC 67(g)

Suppose you cleared both hurdles — the token genuinely has no market and you took an affirmative act documenting abandonment. There is a further problem, and it ends the conversation for most individual investors.

An individual's IRC 165 loss that is not a trade-or-business, casualty or theft loss is a miscellaneous itemized deduction, and IRC 67(g) suspends those. So even a technically valid worthlessness or abandonment deduction produces no benefit for an investor.

The suspension came in with the Tax Cuts and Jobs Act and ran from 2018 through 2025. Reporting on the One Big Beautiful Bill Act, enacted in July 2025, indicates it was made permanent from 1 January 2026. That comes from secondary practitioner sources rather than our own reading of the enacted text, so treat the permanence as well-reported rather than independently verified — but either way the suspension is in force for the 2026 tax year, so the answer for the year you are trading in does not change.

The worthlessness route is therefore blocked at two levels. The first wall is hard to clear, and clearing it does not get you a deduction anyway.

What actually works: dispose of it

The route that produces a usable deduction works because it changes the character of the loss. A disposition is a sale or exchange of a capital asset, producing a capital loss — which is not a miscellaneous itemized deduction and is therefore untouched by IRC 67(g).

Capital losses offset capital gains without limit. For a trader with realised gains earlier in the year that is the whole point: a dead position converted into a realised loss can wipe out tax on a winning trade. Beyond your gains, net capital losses offset only $3,000 of ordinary income a year ($1,500 married filing separately) under IRC 1211(b), with the excess carried forward indefinitely.

Disposal means one of three things.

Sell it on the open market, even for a fraction of a cent. If a pool still exists and a sell will execute, this is the cleanest fact pattern: a real counterparty, a real price, an on-chain record. Why sells fail on memecoins covers what to do when the transaction reverts, as it frequently does on a dead pair.

Sell it to an unrelated third party where no market exists. Legitimate, but it needs a genuine arm's-length transaction; transfers among family or entities you control raise related-party questions.

Send it to a burn address. Practitioners generally treat a burn as a bona fide disposition producing a realised loss, and it supplies the affirmative act abandonment analysis demands. There is a live question about whether a burn is properly a sale or exchange producing a capital loss, or an abandonment producing a loss that IRC 67(g) suspends. That distinction is the entire value of the deduction, and it is where you want an accountant's view rather than a web page's.

Document everything: transaction hash, date, amount, price if there was one, and the basis written off. Do it before 31 December to land it in this tax year. And with no wash sale rule for digital assets there is no 30-day repurchase restriction — wash sale rules do not apply to memecoins sets out that position and its caveats.

Rug pulls and theft losses: genuinely unsettled

A rug pull feels different from a bad trade, and taxpayers reasonably ask whether it can be treated as a theft rather than a capital loss. This is unresolved, and anyone confident either way is overstating what is known.

IRC 165(c)(3) personal casualty and theft losses have been limited since 2018 to federally declared disasters. A rug pull is not that, so the personal theft loss route is closed.

The theory practitioners use instead is IRC 165(c)(2), which allows losses "incurred in any transaction entered into for profit." An investment made with a profit motive and destroyed by fraud is arguably within it, and the Ponzi scheme safe harbor in Rev. Proc. 2009-20 is sometimes invoked by analogy. Whether a rug pull qualifies, what year the loss falls in, and whether the result is ordinary or capital are all fact-dependent, and none is settled by published guidance on digital assets.

The facts vary far more than the word "rug" suggests. A hard rug where the deployer drained the pool is a different case from a soft rug where a team stopped working — the distinction between soft rugs and hard rugs matters legally as well as descriptively, because fraud is easier to argue in the first case.

This is a genuine "consult a CPA" answer, not a defensive one. If you are trying to recover funds rather than deduct them, what to do if you have been rugged covers the reporting channels and the realistic outcomes.

What is genuinely stuck

Some positions have no exit: the pool is gone, no venue will quote the token, transfers fail, or the contract blocks sells. There is no clean answer under current guidance. You cannot deduct a loss on a token you still hold, you cannot easily prove worthlessness while any market data exists, and if you could, IRC 67(g) would suspend the deduction. A transfer to a burn address, if it executes, at least creates a documented affirmative act and a defensible disposition. If nothing executes, put the fact pattern to a professional with the on-chain evidence attached.

Where these rules come from

Outside the US

The US position is unusually strict here and several other jurisdictions handle it better.

The UK provides a dedicated mechanism: a negligible value claim under TCGA section 24 lets a taxpayer treat an asset that has become of negligible value as disposed of and immediately reacquired, crystallising the capital loss without needing to find a buyer. That is materially more generous than anything in US law, and HMRC's cryptoassets guidance addresses it directly.

Canada and Australia work through their capital gains systems and generally require a disposition, with their own rules on when an asset can be treated as worthless — worth confirming locally rather than assuming. Germany taxes private disposals under §23 EStG only inside the one-year holding period, which changes what a loss is even for. India is again the worst case: losses on Virtual Digital Assets cannot be set off against anything, including other crypto gains, and cannot be carried forward, so characterising a dead token is academic.

What this article does not tell you

It cannot tell you whether your specific rug qualifies as a theft loss, because nobody can from a general description. It does not address the trader-versus-investor distinction, which changes the 67(g) analysis materially where activity rises to a trade or business, or entity-held positions, where different rules apply.

It also does not independently verify the permanence of the 67(g) suspension beyond 2026 against the enacted text of the OBBBA. The suspension applies for the 2026 tax year on any reading; later years are worth checking before you plan around them.

Frequently asked questions

My token is down 99.99% but still trades. Can I deduct it?

Not while you hold it. CCA 202302011 addresses this directly: an asset retaining any liquidating value and still actively traded is not worthless, and mere diminution in value creates no deduction. Disposing of the position converts the paper loss into a realised capital loss, deductible against capital gains.

Does sending a token to a burn address create a deductible loss?

Practitioners generally treat a burn as a bona fide disposition, and it supplies the affirmative act an abandonment analysis requires. There is an unresolved question about whether the result is a capital loss or an abandonment loss that IRC 67(g) suspends. Document the transaction hash and get the facts reviewed before relying on it.

Can I claim a theft loss for a rug pull?

Possibly, under IRC 165(c)(2) for losses in a transaction entered into for profit — but this is genuinely unsettled for digital assets and highly fact-dependent. The personal theft loss route under 165(c)(3) is closed, limited to federally declared disasters since 2018. A material loss to a documented fraud is worth a professional opinion.

Do I need to have sold before 31 December?

To claim the loss in a tax year, the disposition must occur within it. A decision made in December and executed in January falls into the following year. If you are harvesting against realised gains, timing is the whole point, and leaving it to the last week of December on an illiquid pair is how disposals fail to execute.

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The deduction is worth a fraction of the loss

At best a capital loss returns your marginal rate on the amount lost, and only if you have gains to offset. Avoiding the position is worth several times more — the Meme Central launch feed carries a safety report on each token page across five chains, and tokens whose liquidity is locked through Team Finance, built by TrustSwap alongside this site, show a verified badge there. A lock only proves the pool cannot be withdrawn. It does not stop a creator selling their own allocation, and it has never prevented a token going to zero.

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Nothing here is financial, legal or tax advice. Memecoins are extremely high-risk: most lose most of their value, and the majority of tokens launched never reach a decentralised exchange at all. Never spend money you cannot afford to lose entirely. Meme Central does not recommend any specific token. Data described as Meme Central's own reflects tokens indexed by Meme Central and is not whole-market data.

This article is general information about a fast-moving area of law and was last reviewed on 31 August 2026. It is not legal or tax advice, rules differ materially by jurisdiction, and your facts matter. Consult a qualified attorney or accountant before acting.