Introduction
CoinTracker can determine a cost basis when you use a known cryptocurrency (ETH, MATIC, etc.) to purchase or mint your NFT.
However, there are situations when CoinTracker won’t be able to determine the cost basis or price for an NFT. When this happens, we will display a message on the transaction for "missing price history" like the screenshot below. For more information on how to reconcile these, you can check out this help guide.
What to do
These situations happen when you trade one NFT for another or receive an NFT without payment (like an airdrop).
In cases like this, you will need to determine the value of the NFT manually.
One way of doing this is to look at comparable sales (comps) through on-chain transaction records or online marketplaces (ex. OpenSea). This approach is known as the "market approach," and it is common in the real estate industry when valuing a building. There are four factors you must consider:
1. Timing: You determine the income and cost basis when you receive it, not when updating your records.
2. Comparability: Identical NFTs (if applicable), similar NFTs in a collection, or similar NFT collections.
3. Reliability: Is the source you are using reliable? One marketplace could be significantly higher than another.
4. Availability: Sometimes, this information isn’t readily available or hard to find. Blockchain data (Etherscan), marketplaces (OpenSea, Magic Eden, Blur, X2Y2), or other sources (ex., Rarity Sniper, LooksRare) are places you can go to to get the information you need.
Example scenarios:
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John is whitelisted and receives an NFT without paying a mint fee. The public mint price was 0.05 ETH (FMV $80). Using the market approach, John has ordinary income of $80, and the cost basis of the NFT is $80.
- John sells the NFT the next day for $100. He has a short-term gain of $20 ($100 - $80).
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If John doesn’t use the market approach and decides not to include any income when receiving the NFT, the cost basis will be $0.
- John sells the NFT the next day for $100. He has a short-term gain of $100 ($100 - $0).
- Jane receives a CryptoPunk as compensation. Jane can look at sales of similar CryptoPunks around the time she received hers to determine her earned income and establish a cost basis.
It is best to consult a tax professional because many factors can influence the value of an NFT.
Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.