Your cost basis method determines which assets are sold first, and different methods can affect how much you owe in taxes.
When you buy the same cryptocurrency at different times, you create multiple cost basis lots for that asset. When you trade or sell that crypto, your profit or loss depends on which of these cost basis lots is used in the sale.
Cost basis calculation options
FIFO (First In, First Out)
- Definition: Assets are sold in the order they were acquired.
- Benefit: The simplest and most conservative method.
Specific ID
- Definition: Allows the identification of the exact coin being sold at the time of transaction, whether ad-hoc or according to a pattern like HIFO or LIFO.
CoinTracker supports HIFO and LIFO under Specific ID but does not offer unit-by-unit identification. If you would like to request this feature, please upvote this post on our feedback forum.
HIFO (Highest In, First Out)
- Definition: Assets bought at the highest price are sold first.
- Benefit: Minimizes taxable gains by selling the most expensive assets first.
Note: CoinTracker defaults all wallets to HIFO, as it tends to lower the tax bill.
LIFO (Last In, First Out)
- Definition: Most recently purchased assets are sold first.
- Benefit: Useful in certain tax scenarios by selling assets with higher recent purchase.
Specific Jurisdiction Cost Basis Options
- Australia: Based on ATO guidance, investors may use Specific ID, FIFO, HIFO or LIFO. Traders, however, cannot use LIFO and are generally restricted to using FIFO.
- Canada: Utilizes Adjusted Cost Base (ACB) based on CRA requirements, with capital gains reported on Schedule 3 Form. In general, ACB averages out the cost of your assets by asset. Learn more about ACB.
- Germany: Employs the FIFO method for calculating the cost basis of cryptocurrency transactions. This approach assumes that the earliest acquired assets are sold first, impacting the calculation of taxable gains.
- United Kingdom: Requires the use of Pooling, which is a hybrid ACB method incorporating the same day rule and the 30 day rule.
Learn more about cost basis and read about what our tax experts say about what the best cost basis methods are for you.
Change your cost basis method
You can change your cost basis method from the Settings page. Changing your cost basis method will apply to all years unless you have an Ultra plan, which will allow you to set a different method for each tax year.
Learn more about setting the cost basis method by tax year. For personalized advice on which method aligns best with your preferences or regulatory requirements, consult a tax professional.
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