The question has a published answer and it is shorter than most people expect, because the IRS puts the loss and its limit in a single sentence. This page carries that sentence, says exactly where the limit is defined, and is candid that the definition is not on the page the answer is on, which is the part that sends most readers to a preparer.
The loss is recognised, and limited in the same sentence
Q4 of the virtual currency FAQ: “When you sell virtual currency, you must recognize any capital gain or loss on the sale, subject to any limitations on the deductibility of capital losses.” The recognition is unconditional; the deduction is not. The clause after the comma does the work, and the FAQ does not expand it: it refers the reader to Publication 544 instead.
A loss only exists once there has been a disposal
Every loss sentence in the FAQ is attached to a sale or an exchange. Q16 recognises a gain or loss on exchanging virtual currency held as a capital asset for other property, another virtual currency included, and Q14 does the same for paying someone for a service with it. A position that has fallen in value and not been disposed of is not addressed by any answer in the FAQ.
Where the loss is reported
Q43 sends capital transactions to Form 8949, Sales and Other Dispositions of Capital Assets, and then to Form 1040 Schedule D, Capital Gains and Losses, to summarise capital gains and deductible capital losses. The word deductible appears there too, so the form itself assumes some losses are not. The FAQ does not say which, on the page this site read.
What the guidance read here does not answer
It does not state an annual cap on deducting net capital losses against ordinary income, it does not address worthless or abandoned tokens, and it does not mention exchange failure or theft. Those are real questions and the answers are not on the two IRS pages in this ledger, so this site records them as not published rather than answering them from elsewhere.
Questions people ask about can you write off crypto losses
Does the IRS say losses can be deducted without limit?
No. Q4 makes recognition mandatory and then adds “subject to any limitations on the deductibility of capital losses”. The limitations themselves are not set out in the FAQ; it points to Publication 544 for the treatment of capital gains and losses.
Can I claim a loss on a token I still hold?
The FAQ does not say. Every answer about a loss in it is framed by a sale or an exchange, so on the guidance read here a loss becomes reportable at a disposal. Nothing on those pages addresses an unrealised fall in value.
Which forms carry the loss?
Form 8949 for the transaction and Form 1040 Schedule D to summarise, per Q43. Ordinary income from mining, staking or forks is a separate track and goes on Schedule 1, according to the digital assets page.
Does a missing 1099 mean the loss is not reportable?
Q42 says the opposite for the reporting duty generally: income, gain or loss from all taxable transactions must be reported for the year of the transaction regardless of the amount or whether a payee statement or information return arrives.