Polymarket Was Hacked Again. Can You Deduct What Was Stolen?

Maybe, but only if three things are true: the money was taken in a theft, you held it to trade for profit, and there’s no realistic chance of getting it back. Even then the deduction is limited to what you put in, not what your positions were worth, and it only helps if you itemize. If Polymarket refunds you, there is nothing to deduct.

What happened

On October 29, 2026, Polymarket put its exchange into cancel-only mode and paused relayer actions after users reported drained accounts, Crypto Briefing reported. Researchers at Hudson Rock found code in a third-party monitoring script on Polymarket’s site that could reach trading sessions and sell positions. One trader reported losing about $800,000. As of October 30, the number of accounts hit and the total loss weren’t confirmed, and we found no statement from Polymarket about refunds.

It’s the second incident like this in 2026. In June, a compromised third-party script drained about $3 million from roughly 11 wallets, and Polymarket said it would refund victims (CoinDesk).

When a theft loss counts

The IRS’s own lawyers walked through this question for scam victims in a March 2025 memo, Chief Counsel Advice 202511015. Three tests come out of it:

1. It has to be a theft under the law of your state: an illegal taking. Draining an account with malicious code would normally qualify, but your state’s criminal law decides.
2. The money has to be in a transaction entered into for profit. Since 2018, individuals can’t deduct personal theft losses outside federally declared disasters, and the 2025 tax law made that limit permanent. A theft of money you held to make a profit is the exception (26 U.S.C. §165(c)(2)). In the memo, victims who lost money they meant to invest could deduct it; victims of a romance scam couldn’t. Money kept on Polymarket to trade looks like the first kind, but it’s a question of your facts.
3. There has to be no reasonable prospect of getting it back. A theft loss counts in the year you discover it, but not while a real claim for recovery is open. A refund promise, an insurance fund or a pending claim against the platform means you wait until that’s settled.

How much you can deduct

Your basis, which is what you put in, not the market value of what was taken. The memo is direct about it: you can’t deduct income or an unrealized gain that you never reported.

• You deposited $5,000 and your open positions grew to $8,000 before they were drained. The theft loss is $5,000. The $3,000 of paper gain was never taxed, so it isn’t deductible either.
• You had already closed trades for a $3,000 profit and kept the $8,000 in cash on the platform. That $3,000 is income you report for the year, so your basis in the cash is the full $8,000.

If the attacker sold your positions before moving the money out, those trades will show in your history. Note which trades weren’t yours and go through them with a preparer.

Where it goes on your return

A theft of money held for investment goes on Form 4684, Section B, and from there to Schedule A, line 16. Schedule A means itemizing. If you take the standard deduction, the loss gives you no tax benefit.

If Polymarket refunds you

A full refund means there’s no loss. If you deducted a loss and a refund arrives in a later year, you don’t amend; you report the refund as income in the year you get it, to the extent the deduction cut your tax. That’s why waiting until the refund question is settled is usually simpler.

What to do now

• Take screenshots of your balance and history, dated, before anything changes.
• Write down your wallet address and the transaction hashes of the transfers out.
• Report it to Polymarket support and keep the ticket.
• File a report with the FBI’s Internet Crime Complaint Center and your local police. A report helps show it was a theft.
• Keep the rest of your year’s trades separate from the theft. Your gains and losses from trading are reported under one of the four methods; the theft is its own item.

For the rest of your Polymarket year, WagerMints reads your wallet’s full history, including positions that lost and were never redeemed, and prices it four ways. How Polymarket trades are taxed.