Note: This feature is currently available only to CoinTracker Ultra plan users, and is not available in the UK or Canada due to WAC rules—upgrade to the Ultra plan here to gain access to this feature!
The Tax Lots view is a new feature that is designed to provide detailed insights into your cryptocurrency holdings, helping you to optimize your tax obligations. Use the tool to plan and optimize your taxes. By analyzing the breakdown, you can identify which lots are most beneficial to sell, based on factors like long-term vs. short-term capital gains.
Review our guide How to View Tax Lots for information how to access and explore this feature.
What are tax lots?
A "tax lot" refers to a group or a "lot" of cryptocurrency units that are treated as a single entity for tax purposes. Each tax lot is associated with a specific purchase date and cost basis, which is essential for calculating capital gains or losses for tax reporting.
What can I use the Tax Lots view for?
By leveraging the Tax Lots feature, you can gain deeper insights into your cryptocurrency transactions and make more informed decisions for tax purposes:
Familiarize with Tax Lots: Understanding the concept of tax lots is crucial. Each lot represents a separate transaction or group of transactions, and the date and cost basis of each lot play a key role in determining your tax liability.
Tax Optimization: Use the tool to plan and optimize your taxes. By analyzing the breakdown, you can identify which lots are most beneficial to sell, based on factors like long-term vs. short-term capital gains. Please consult with a tax professional. This feature is for informational purposes only.
Reconciliation and Planning: The tool can help reconcile past transactions and plan future ones. Pay attention to any discrepancies that might arise from incomplete transaction histories.
Example: Purchasing Bitcoin Over a Year
Here is an example of someone that purchased Bitcoin using the Highest-In, First-Out (HIFO) cost basis method. In this method, the lots with the highest cost basis are sold first:
Purchases
- January 1: Buy 1 Bitcoin for $30,000.
- March 15: Buy another 2 Bitcoins for $35,000 each ($70,000 total).
- July 10: Buy 1 Bitcoin for $40,000.
- November 20: Sell 2 Bitcoins.
Tax Lots
Each purchase creates a separate tax lot:
- Lot 1: 1 Bitcoin @ $30,000 (January 1)
- Lot 2: 2 Bitcoins @ $70,000 ($35,000 each (March 15))
- Lot 3: 1 Bitcoin @ $40,000 (July 10)
Lots Used at Sale
When they sell 2 Bitcoins on November 20, the HIFO method prioritizes the lots with the highest cost basis. Therefore, the sale will use:
-
Lot 3: 1 Bitcoin @ $40,000 (the entire lot is sold)
and - Lot 2: 1 Bitcoin @ $35,000 (only 1 out of 2 Bitcoins from this lot is sold)
The remaining Bitcoin from Lot 2 (1 Bitcoin @ $35,000) and Lot 1 (1 Bitcoin @ $30,000) are still part of their holdings.
Tax Implications
The capital gains or losses will be calculated based on the cost basis of the Bitcoins sold and their selling price, also known as proceeded. For example, if they sold each Bitcoin for $45,000 on November 20, the calculation for capital gains would be:
- 1 Bitcoin from Lot 3: Gain = Selling Price (Proceeds) - Cost Basis = $45,000 - $40,000 = $5,000
- 1 Bitcoin from Lot 2: Gain = $45,000 - $35,000 = $10,000
Total capital gain from the sale of 2 Bitcoins = $5,000 + $10,000 = $15,000
This example simplifies the process, but in real-world scenarios, other factors, such as transaction fees and market fluctuations, should also be considered. Always consult with a tax professional for accurate tax advice.
Key Points to Remember About Tax Lots
- Each purchase creates a unique tax lot with its specific cost basis and date.
- The HIFO (unlike FIFO or LIFO) sells off the lots with the highest purchase price first.
- Capital gains/losses are calculated for each lot based on their individual cost basis and the sale price (proceeds).
- Consult Professionals: While the Tax Lots tool provides valuable insights, it's always advisable to consult with a tax professional to understand the implications fully.