Track wrapped crypto transactions

• Wrapped crypto are crypto tokens that maintain the same value across different blockchains. 
• They bridge gaps between blockchains, allowing for greater functionality and efficient fund transfers, which are essential for decentralized financial (DeFi) applications. 

Using the Wrap category

Here are scenarios to change the category of a Trade transaction to Wrap:

• Tokenize a cryptocurrency, converting it into a wrapped version for specific blockchain networks and activities.
• Unwrap a token, converting it back to its original form.

Tax treatment of Wrap transactions

By default, Wrap transactions are treated as taxable events, much like traditional trades. However, you can change your settings to treat Wrap transactions as non-taxable:

1. Navigate to Settings.
2. Click the Tax tab.
3. Click Treat wrapping as non-taxable, and toggle it on. 
4. Select a start date.
5. Select an end date (optional), then click Next.
6. Review the details and click Confirm & save to complete this process.

You must choose an effective date for tax purposes. Transactions marked as wrap after this date won't be taxable. The default date is based on your country’s tax year. 

To turn off this setting, follow the above steps and toggle the feature off.

When Wrap transactions are marked as non-taxable

• Transfer of cost basis: The cost basis of the outgoing crypto is transferred to the incoming crypto, retaining the original purchase details.
• Acquisition dates:

  • Single-In-Single-Out (SISO) Transactions: The acquisition date of the outgoing crypto is applied to the incoming crypto. 

  • Multiple-In-Multiple-Out (MIMO) Transactions: The transaction date becomes the acquisition date for the incoming crypto.

Example: Single-In-Single-Out Transactions

If ETH was bought on 1/1/22, then wrapped in WETH and received on 1/10/22:

• The acquisition date for WETH on your 8949 tax form would be 1/1/22, not 1/10/22.

Later, if you traded 0.5 WETH for an NFT on 2/1/22:

• The acquisition date for the 0.5 WETH would still be 1/1/22, not 1/10/22.

If you unwrapped 0.5 WETH for 0.5 ETH and sold the 0.5 ETH on 2/1/22:

• The acquisition date for the 0.5 ETH would be 1/1/22.

Example: Multiple-In-Multiple-Out Transactions

If 1 ETH and 1 cbETH were bought on 1/1/22 and wrapped into WETH and received on 1/10/22. Later, when WETH is unwrapped on 2/1/22 and 2 ETH is received and sold the same day:

• • The acquisition date for the 2 ETH will be 1/10/22, not 2/1/22.