BLOG
/
Crypto Taxes
8 min read
|
InfoInfo
Our Editorial Standards
You’re our first priority. Every time.
Our content is designed to educate the 300,000+ crypto investors who use the CoinLedger platform. Though our articles are for informational purposes only, they are written in accordance with the latest guidelines from tax agencies around the world and reviewed by certified tax professionals before publication.

Crypto Cost Basis 101: What You Need to Know to File Taxes

Crypto Cost Basis 101: What You Need to Know to File Taxes

You can’t pay your crypto taxes without knowing your cost basis. 

Unfortunately, keeping track of your cost basis is easier said than done. Since investors often move their cryptocurrency holdings between wallets and exchanges, it can be difficult for them to calculate their capital gains and losses. 

In this article, we’ll break down everything that crypto investors need to know about cost basis. We’ll explain what crypto cost basis is, break down how to calculate it in different situations, and share an easy way to track your cost basis in any circumstance. 

Crypto taxes 101 

In the United States, cryptocurrency is considered a form of property, similar to stocks and real estate. 

Like these other assets, investors must incur capital gains or capital losses when they dispose of their cryptocurrency. Some examples of disposal events include: 

  • Selling cryptocurrency for fiat 
  • Trading cryptocurrency for other cryptocurrencies
  • Purchasing goods/services using cryptocurrency. 

For more information, check out our complete guide to crypto taxes

What is cost basis? 

Cost basis is the price you pay to acquire your cryptocurrency. Knowing your cost basis is essential to accurately calculate your tax liability. 

To better understand why, consider the following scenario. 

To determine how much he’ll incur in capital gains, Scott can use the formula below. 

Capital gains tax formula

In this case, Scott’s cost basis is $1,000.  Meanwhile, the fair market value of his Bitcoin at the time of disposal is $2,000. By plugging in the numbers, we get the following result.

$2,000 proceeds - $1,000 cost basis = $1,000 capital gain 

It’s important to remember that tax liability is dependent on other factors as well, such as the taxpayer’s personal income bracket and their holding period. For more information, check out our guide to crypto tax rates

How is cost basis determined for crypto-to-crypto transactions? 

Many crypto investors partake in crypto-to-crypto trades, such as the one below. 

Crypto-crypto cost basis

In this case, Sterling’s cost basis is the fair market value of the coins he acquired in USD terms when he bought them along with any fees that he paid in the acquisition process. 

Assuming that there are no fees involved with his transaction, Sterling’s cost basis for his Bitcoin would be $1,000. Upon trading the $2,000 worth of Bitcoin for Ethereum, Sterling would incur $1,000 of capital gains. Meanwhile, his cost basis for Ethereum would be equal to how much he paid to acquire it: $2,000. 

It can be difficult to determine the fair market value of your cryptocurrency in USD terms. Many exchanges do not quote crypto-to-crypto trades in USD. In this case, crypto tax software like CoinLedger can help. Simply upload your trades, and the platform’s historical price engine will take care of the rest. 

Are transaction/gas fees included in cost basis? 

In the past, the IRS has said that any costs that are incurred for acquiring/selling property can be included within cost basis. It’s therefore reasonable to assume that any costs associated with buying and selling crypto can be included in the cost basis, whether it’s exchange transaction fees or blockchain gas fees

Ethereum gas fees cost basis

I bought my cryptocurrency at multiple price points. How do I calculate my cost basis? 

In some situations, investors will have trouble determining their cost basis, because they purchased the same cryptocurrency at multiple price points. Consider the scenario below. 

Crypto cost basis calculation

In this case, Brian’s capital loss depends on the accounting method he chooses to use to determine his cost basis. 

FIFO 

If Brian chooses to use FIFO (first-in first-out), the first Bitcoin he acquires will be the first one that he disposes of. In this case, the cost basis of the .5 Bitcoin he sells would be $40,000 and his capital loss is $5,000. 

LIFO and HIFO 

In this specific scenario, Brian can claim higher capital losses by using accounting methods like LIFO (last-in-first-out) and HIFO (highest-in first-out). With either of these methods, his cost basis is $50,000 and his capital loss is $15,000. 

Most investors choose to use FIFO because it is considered the most conservative option. However, the IRS does allow investors to use methods such as HIFO or LIFO if they are able to specifically identify each individual unit of cryptocurrency sold. 

For more information, check out our guide to FIFO, HIFO, and LIFO

What is the cost basis for airdrops? 

Some cryptocurrency projects airdrop tokens to users to build awareness and community. 

If you receive airdrop rewards, the cost basis of your airdropped tokens is the fair market value of the tokens at the time they were received. If the token has no fair market value at the time of the airdrop, you can use the fair market value at the time a market becomes available. 

What is the cost basis for staking and mining rewards? 

If you’ve received cryptocurrency from staking or mining, your cost basis is equal to the fair market value of your tokens at the time they were received. 

How do I determine the cost basis for a cryptocurrency gift? 

Determining the cost basis for a cryptocurrency gift can be complicated. We recommend that the party giving the gift provides the recipient with a document that states their cost basis for acquiring the asset. This makes it easier to calculate capital gains in a disposal event. 

For more information, check out our guide to cryptocurrency gift taxes.

How does the IRS know your cost basis? 

In the past, the IRS has asked exchanges such as Coinbase and Kraken to hand over customer transaction history, which includes data such as cost basis. 

In the future, the IRS will have access to even more taxpayer data. The American infrastructure bill signed in November 2021 requires any third party facilitating a cryptocurrency transaction to send a Form 1099 to both the customer and the IRS. 

Why keeping track of your cost basis can be difficult 

Cryptocurrency investors often use multiple wallets and exchanges. That can make it difficult to keep track of the cost basis of their various assets. Consider the following scenario. 

BlockFi tracking crypto cost basis

In this case, BlockFi cannot help David keep track of his cost basis because the exchange does not have access to this information. David needs to keep track of his cost basis on his own. 

While this example is relatively simple, tracking your cost basis only becomes more complicated if you are interacting with multiple applications and trading in multiple cryptocurrencies.

If you find yourself in this situation, crypto tax software can help. CoinLedger can help you aggregate all of your crypto transactions, making it easier than ever to keep a comprehensive record of your capital gains and losses. 

Get started with crypto tax software 

You don’t need to rely on a spreadsheet to keep track of your cost basis for each one of your crypto-assets. Instead, you can get started with CoinLedger, the crypto tax software trusted by more than 300,000 investors. 


CoinLedger automatically integrates with exchanges like Coinbase, Gemini, and Kraken, allowing you to pull in your complete transaction history. Our platform can help you easily track your cost basis, even if you’re transferring cryptocurrency between wallets and exchanges. 

Want to get started? Get started today with a free preview report

Frequently asked questions

Lets summarize what we’ve discussed by answering a few frequently asked questions about crypto cost basis. 

Are fees included in your cost basis? 

Generally, yes. Investment expenses like transaction fees and gas fees can be included in your cost basis for tax purposes. 

Which method should you choose to calculate crypto cost basis? 

While the IRS currently allows investors to use multiple accounting methods, most crypto investors choose FIFO since it is considered the most conservative option. 

Do exchanges show cost basis? 

Many crypto exchanges do not show cost basis for crypto-to-crypto trades in USD terms. In this case, a crypto tax calculator like CryptoTrader.Tax can help you by retrieving the historical price data for various cryptocurrencies. 

How do you calculate cost basis for cryptocurrency? 

To calculate your crypto basis, use the following formula. Cost basis = Cost you paid to acquire cryptocurrency + relevant transaction/gas fees

...

Calculate Your Crypto Taxes

  • Check
    No credit card needed
  • Check
    Instant tax forms
  • Check
    No obligations
Get Started For Free