Sending coins to a "burn wallet"

Koinly Support
1

In the article on rug pulls the author describes sending crypto assets that can no longer be sold (i.e. due to low liquidity) can be sent to a “burn wallet” so that a capital loss can be claimed.

  1. How is this actually done?
  2. Is there a specific wallet address I should send these assets to?
  3. Are there specific addresses that Koinly will recognize as “burn wallets?”
  4. Is there an easier way to claim this loss?
2

I would like to know too as I was victim to a couple of rug pulls this year too.

My interpretation of that article is this… You create a burn wallet (ie: in Metamask) and you send those coins to it - effectively getting rid of them. In Koinly you would then add a transaction to reflect this.

It is at this point where I am not sure how you would tag this for it to then appear as a loss. Is it…

  • A trade with a value of 0?
  • A withdrawl with a value of 0?
  • A loss with a value of 0?

Perhaps another way would be to burn the tokens (via Metamask) and then remove all trades in Koinly to do with the token? I imagine this isn’t quite as ‘clean’ a trail however should you ever need to show what happened.

3

Here is one suggestion to help Koinly realize a capital loss when you burn tokens that have lost their value and are worthless. I am assuming that the worthless tokens in your wallet were assigned the proper cost base by Koinly when you acquired the tokens.

When you send the tokens to a burn address on the blockchain Koinly will treat the transaction as a Send or Withdrawal because there is no crypto coming back to the sending wallet in return. However, you can edit this transaction to make it a Trade for a very small/nominal amount of ETH (or other another native coin). Koinly will then record a (nearly) complete capital loss on the disposal of the worthless coins. You will have a very small difference between the ETH you actually have in your wallet and the amount of ETH Koinly sees you having in your wallet. If this bothered you, then you could manually enter a burn tx of this small amount of ETH.

Another approach would be to trade the worthless tokens with a friend for a small amount of ETH or other crypto. Your friend could then burn the tokens. You could return the favour and send back your friend’s ETH/crypto.

Sending the tokens to a burn wallet that you created will not constitute a disposal of the tokens if you own the wallet. You would not be entitled to claim a capital loss by doing this.

Others may have other better solutions.

4

Great solutions - I will do this for 2022. I wish I’d known this last year.

Thanks!