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

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

  • At a high level, cost basis is how much you paid to acquire your cryptocurrency. 
  • Typically, your cost basis is the fair market value of your crypto at the time of receipt, plus any fees directly related to the acquisition. 
  • If you acquired your crypto at multiple price points, you can use a cost basis method like HIFO, LIFO, or FIFO to calculate your cost basis. 

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

Unfortunately, keeping track of your cost basis is easier said than done. Because 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. 

How do I determine the cost basis of my cryptocurrency? 

In most cases, your cost basis is how much you paid to acquire your cryptocurrency. Typically, this is the fair market value of your cryptocurrency at the time of receipt plus the cost of any fees related to acquiring your crypto. 

Cost Basis example

What are proceeds and how do I calculate this? 

The proceeds of your sale are how much you received for disposing of your cryptocurrency. Typically, this is the fair market value of your crypto-asset at the time of disposal, minus the cost of relevant fees. 

Proceeds example

Why do I need to know my cost basis to calculate my crypto taxes? 

 Cost basis is essential for calculating your capital gains and losses. To better understand why, consider the following scenario.

Capital gain example

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

Capital gain formula

In this case, Scott’s cost basis is $1,500.  Meanwhile, the fair market value of his Bitcoin at the time of disposal is $2,000. By plugging in these values, we get the following result.

$2,000 proceeds - $1,500 cost basis = $500 capital gain 

It’s important to remember that how much tax you pay is dependent on other factors, such as your income bracket for the year and how long you held your cryptocurrency. For more information, check out our guide to crypto tax rates.

What happens when you don’t know the cost basis of your cryptocurrency? 

If you don’t have information on the cost basis of your cryptocurrency, you can estimate it by finding the historical price of your cryptocurrency at the time that you acquired it. 

If you don’t know the historical price of your cryptocurrency, you may need to treat the cost basis of your crypto as $0. That means the entire proceeds of your sale should be treated as a capital gain.

Do Coinbase and other exchanges show cost basis? 

If you’ve purchased your cryptocurrency on an exchange like Coinbase, you can find your cost basis by looking at your exchange records. However, exchanges won’t know your cost basis in cases where you transferred your cryptocurrency.

What happens when you don’t know the cost basis of your cryptocurrency? 

If you don’t have information on the cost basis of your cryptocurrency, you can estimate it by finding the historical price of your cryptocurrency at the time that you acquired it. 

If you don’t know the historical price of your cryptocurrency, you may need to treat the cost basis of your crypto as $0. That means the entire proceeds of your sale should be treated as a capital gain.

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-to-crypto transactions

In cases like these, your cost basis in the newly-acquired cryptocurrency is equal to its fair market value at the time of receipt, plus the cost of any relevant fees. In this case, Jack’s cost basis in Ethereum is $1,500. 

Meanwhile, Jack’s proceeds in the BTC that he disposed of is also equal to $1,500. He will incur a capital gain or loss on his BTC depending on how the price changed since he originally received it.

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

What cost basis method should I use for cryptocurrency?

In some situations, investors 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 rewards at the time of receipt.

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

Determining the cost basis of gifted cryptocurrency can vary depending on your specific situation. It's recommended that you keep records of the gifter's original cost basis for acquiring the cryptocurrency as well as the fair market value of the cryptocurrency at the time of receipt.

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

How does the IRS know your cost basis? 

Exchanges like Coinbase and Gemini send 1099 forms to the IRS, which contains customer information and data on cryptocurrency transactions. 

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

How to track your cost basis 

If you have trouble tracking your cost basis across multiple wallets and exchanges, crypto tax software can help. CoinLedger is built to help you aggregate all of your crypto transactions, making it easier than ever to track your cost basis over time and keep a complete record of your 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 and blockchains like Ethereum, 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. 

Get started with a free account today.

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? 

Expenses related to acquiring your crypto — such as transaction fees and gas fees — can be added to your cost basis.

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 = Fair market value of crypto at the time of receipt + relevant transaction/gas fees

How much will my crypto be taxed? 

The taxes you pay on crypto vary based on several factors — such as your income level and your holding period. For more information, check out our guide to cryptocurrency tax rates.

Frequently asked questions

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How we reviewed this article

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All CoinLedger articles go through a rigorous review process before publication. Learn more about the CoinLedger Editorial Process.

CoinLedger has strict sourcing guidelines for our content. Our content is based on direct interviews with tax experts, guidance from tax agencies, and articles from reputable news outlets.

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