Your cost basis tracking selection determines how your purchases and sales are recorded in your portfolio. This helps track how much you paid for an asset, known as its cost basis.
When you sell or trade an asset, your cost basis tracking selection helps figure out if you made a capital gain or loss, which affects how much tax you may owe.
There are two options for tracking cost basis:
- Per-Wallet: Tracks transactions separately for each wallet.
- Universal: Combined transactions from all wallets, but is no longer available for US taxpayers.
Important: Starting January 1, 2025, the Per-Wallet tracking option will be the only acceptable solution for cost basis tracking for US taxpayers.
Tracking cost basis in CoinTracker
Per-Wallet tracking method
The Per-Wallet option keeps separate queues for each cryptocurrency within each specific wallet. As a result, the cost basis for a cryptocurrency sold from a particular wallet will come exclusively from that wallet, ensuring clarity and compliance with regulatory frameworks.
Example
You purchased the following BTC across two wallets:
Wallet A
- 1 BTC on June 1, 2018 for $7,000
- 1 BTC on March 1, 2019 for $4,000
Wallet B
- 1 BTC on February 1, 2023 for $17,000
- 1 BTC on August 25, 2023 for $26,000
During 2024, you make the following sales:
- 2 BTC from Wallet A on December 1, 2024 for $95,000 each
Selling bitcoin using HIFO (Highest In, First Out):
- Sale price: $190,000 (2 × $95,000)
- Cost basis: $11,000 ($7,000 for the first BTC from Wallet A + $4,000 for the second BTC from Wallet A)
- Long-term gain: $190,000 - $11,000 = $179,000
This example shows how the Per-Wallet method calculates gains using only the transactions from the specific wallet where bitcoin was sold.
Universal tracking method (no longer available)
Before 2025, taxpayers could use the Universal cost basis tracking method. With the Universal tracking method, all transactions for a given cryptocurrency across various wallets were combined into a single queue. This meant that the cost basis used for a sale could come from any connected wallet, regardless of where the sale occurred. This option is no longer available starting January 1, 2025.
Example
In our previous example, if we apply the Universal tracking method, selling bitcoin using HIFO (Highest In, First Out) would result in:
- Sale price: $190,000 (2 × $95,000)
- Cost basis: $43,000 ($26,000 for the first BTC + $17,000 for the second BTC from Wallet B, HIFO from the combined queue)
- Long-term gain: $190,000 - $43,000 = $147,000
This example shows how the Universal method calculates gains by grouping transactions across all wallets.
Transitioning from Universal to Per-Wallet
The IRS released Revenue Procedure 2024-28 to guide taxpayers transitioning from the Universal cost basis tracking method to the Per-Wallet method. For a complete breakdown, read our blog post.
Stay compliant with Per-Wallet tracking
Failing to follow Per-Wallet tracking can result in discrepancies in IRS reports and may trigger inquiries from tax authorities. To align with anticipated regulatory changes, CoinTracker automatically defaults to per-wallet tracking for U.S. users.
Why transitions steps are required
Switching from Universal to Per-Wallet tracking without following the proper transition steps will apply Per-Wallet tracking retroactively. This will alter prior years, creating discrepancies between your reported and actual capital gains and income.
To avoid this, you must follow the transition steps outlined in our blog post.