Celsius Bankruptcy Tax Treatment 2026 – Reporting Your Losses to the IRS

Celsius Network filed for bankruptcy in July 2022 and distributions to creditors have continued into 2025–2026. Here is how to handle the complex tax treatment of your Celsius losses.

What Happened to Celsius Users

Celsius Network froze withdrawals in June 2022 and filed for Chapter 11 bankruptcy in July 2022. Customers who had crypto deposited in Celsius's Earn, Borrow, or Swap products became unsecured creditors. Distributions of BTC, ETH, and other assets began in 2024 following the bankruptcy settlement.

When Is the Celsius Loss Deductible?

The IRS has not issued direct guidance on crypto exchange bankruptcies. Based on IRS principles and tax attorney analysis, there are several possible treatments:

Option 1: Theft Loss (Limited After TCJA)

The Tax Cuts and Jobs Act of 2017 severely limited theft loss deductions for individuals. Personal theft losses are only deductible if they arise from a federally declared disaster. Celsius's bankruptcy likely does not qualify. However, if Celsius is ultimately deemed to have engaged in fraud (rather than simply insolvency), a theft loss argument may be stronger under the Ponzi scheme loss rules.

Option 2: Worthless Security / Bad Debt Deduction

If the amounts owed to you become "worthless," you may be able to claim a bad debt deduction. This is cleaner once the bankruptcy case closes and you know definitively what you will receive vs what was lost. Amounts not recovered become a capital loss.

Option 3: Capital Loss Upon Distribution

The most common approach: when you receive a distribution from the bankruptcy estate, you recognize a capital gain or loss based on the difference between what you deposited (your basis) and the fair market value of what you received. Final losses are reported after the bankruptcy process concludes.

IRS Revenue Procedure for Losses

Rev. Proc. 2009-20 provides a safe harbor for Ponzi scheme losses, allowing ordinary loss deductions in the year of discovery. Whether Celsius qualifies as a "qualified investment" under this procedure depends on the facts of the case. Consult a crypto tax attorney.

What to Do Now

1. Keep detailed records of all crypto deposited to Celsius with dates and USD values
2. Track all distributions received from the bankruptcy estate with dates and USD values
3. Wait until the bankruptcy process is substantially complete before finalizing your deductions
4. Consult a crypto-specialized CPA or tax attorney given the complexity

State Tax Considerations

State tax treatment of Celsius losses may differ from federal treatment. Some states do not conform to all federal bankruptcy and casualty loss rules. Review your specific state's guidance.

Disclaimer: This article is for general informational purposes only and does not constitute tax advice. For individual tax advice, consult a licensed tax professional.