Crypto Cost Basis 101 (Read Before You File)

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 show an easy way to help you track cost basis across wallets and exchanges. 

How is cryptocurrency taxed?

Before we explain how cost basis works, let’s break down the basics of crypto taxation. 

In the United States, cryptocurrency is subject to capital gains and income tax.

Investors must recognize 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 fair market value of your cryptocurrency at the time you acquired it. 

Cost basis is the fair market value of your cryptocurrency at the time you acquired it. It’s important because it’s used to calculate your capital gains and losses.

You can use the following formula to calculate your capital gain or loss.

Capital Gain/Capital Loss = Proceeds - Cost Basis 

In this case, proceeds are the fair market value of your cryptocurrency at the time of disposal (e.g. when you sold it or traded it away).

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

To better understand how cost basis works, let’s look at an example. 

In this case, Scott’s cost basis (his cost for acquiring BTC) is $1,500.  Meanwhile, the fair market value of his Bitcoin at the time of disposal (his proceeds) is $2,000. By plugging in these values into the formula we saw earlier, we get the following result.

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

How do fees impact cost basis? 

Fees directly related to buying/selling your crypto can be added to your cost basis. This can reduce your capital gain.

Is my cost basis wrong on my 1099 form?

Starting in 2026, centralized exchanges like Coinbase and Gemini will be required to report capital gains and losses on Form 1099-DA. However, for the 2025 tax year, they are not required to track and report cost basis to the IRS. 

Remember, cost basis info on 1099 forms isn’t always accurate, especially if you’ve transferred crypto across wallets/exchanges. This typically happens because exchanges have no visibility into transactions outside of their own platform. Consider the following example. 

In this case, Brooke should have $600 of capital gain. However, Exchange B doesn’t know her original cost for acquiring BTC. If Brooke hasn’t kept accurate records of her cost basis, she may be forced to recognize her entire $1,800 sale as a capital gain. 

Luckily, there’s an easy fix to this issue. The IRS allows taxpayers to report the correct cost basis for their crypto transactions on Form 8949, provided that they have documentation of their purchase.

There’s no need to request a corrected Form 1099-DA for cost basis differences.

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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. 

Just plug in your wallets and exchanges and CoinLedger can automatically find your cost basis for your cryptocurrencies and NFTs.

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 should treat the cost basis of your crypto as $0. That means the entire proceeds of your sale should be treated as a capital gain.

Why do I need a cost basis method? 

If you’ve bought cryptocurrency at multiple price points, you’ll need to use an accounting/cost basis method to calculate your cost basis. Consider the following example. 

At first glance, it may be difficult to tell what the cost basis of Ralph’s Bitcoin should be since he bought BTC at multiple price points. To find his capital gain, Ralph will need to select a cost basis method. 

What cost basis method should I use for cryptocurrency?

Cost basis methods determine the order in which you dispose of your cryptocurrency. The most common methods to use for cryptocurrency are FIFO, LIFO, and HIFO. 

Remember, the ‘right’ cost basis method for you varies depending on your unique situation. FIFO is the default methodvused by most investors.

FIFO 

With FIFO (first-in first-out), the first cryptocurrency you acquire is also the first you dispose of. In the United States, FIFO is considered the ‘default’ method for calculating capital gains. 

In the example above, the cost basis would be $30,000. Using FIFO, Ralph’s capital gain would be $15,000. 

LIFO 

With LIFO (last-in first-out), the last cryptocurrency you acquire is the first you dispose of. 

In the example above, the cost basis would be $38,000. Using LIFO, Ralph’s capital gain is $7,000. 

HIFO 

With HIFO (highest-in first-out), the highest-value cryptocurrency you acquire is the first you dispose of. HIFO is considered the best cost basis method for minimizing capital gains. 

In the example above, the cost basis would be $40,000. Using HIFO, Ralph’s capital gain is $5,000. 

Can I change my cost basis method from one year to the next? 

While you are allowed to change your cost basis method from one year to the next, it’s generally recommended to speak with a tax professional before doing so. 

Switching your cost basis from year-to-year may lead to potential issues with the IRS. For example, if you use FIFO one year and then HIFO the next, it’s possible you may use the same batch of cryptocurrency twice to calculate your cost basis. This may lead to penalties and fines. 

What is per-wallet cost basis? 

Starting in the 2025 tax year, the IRS will require all taxpayers to use per-wallet tracking for cost basis. That means you will have to account for the cost basis in each wallet/exchange where you’re holding crypto. 

To better understand how this works, consider the following example. 

The universal tracking method 

Before January 1, 2025, the IRS allowed the ‘Universal Tracking’ method. This essentially means that you treat all of your cryptocurrency as if it was from the same wallet or exchange, regardless of where you bought it and where you currently hold it. 

In the example above, Caleb’s cost basis for the 1 BTC sale using FIFO and Universal Tracking would be $20,000, regardless of which exchange he sold his Bitcoin on. 

The ‘per wallet’ basis 

After January 1, 2025, all taxpayers will be required to use the ‘per wallet’ or ‘per account’ cost basis method. This means that sales of assets have to be matched with cost basis from buys or acquisitions of assets from the same account or wallet, hence ‘per wallet’. 

In the example above, Caleb’s cost basis would be $25,000, since he is selling from the ‘lot’ of BTC purchased on Exchange B. 

How do wallet transfers impact my cost basis? 

When you transfer your cryptocurrency from one wallet to another, your cost basis will transfer over as well. 

Once Per Wallet tracking requirements go into effect in the 2025 tax year, you can use accounting methods like FIFO/LIFO to track the cost basis of any transferred cryptocurrency. 

Looking for an easy to track your crypto taxes based on per-wallet requirements? Crypto tax software like CoinLedger can help.

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, your exchange likely won’t have a record of your cost basis if you transferred your crypto from another wallet or exchange. 

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

Many crypto investors trade one cryptocurrency for another, such as the example transaction below.

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. Some 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.
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