Cost basis is a key concept in finance and taxation. It determines the gain or loss you realized when buying or selling cryptocurrency. Continue reading to learn what cost basis is, how it's calculated, and which methods apply depending on your home country setting.
The basics of cost basis
Cost basis is the value of a crypto at the time it is acquired. It includes:
- The purchase price
- Any associated costs, like transaction fees
Cost basis is crucial for determining your tax liability. When you sell crypto, the difference between the sale price (proceeds) and the cost basis determines your capital gain or loss.
- The formula: Proceeds - cost basis = capital gains (or losses)
Calculate cost basis
The method for calculating cost basis depends on how the crypto was acquired. For example:
- Buying crypto with cash: The cost basis is the fair market value (FMV) of the crypto at the time it is acquired, including any transaction fees.
- Trading crypto for crypto: The acquired crypto receives a new cost basis based on its FMV at the time of the trade, including any fees. The outgoing crypto may result in a capital gain or loss, depending on what you originally paid for it.
The cost basis method determines the order in which lots are used when you trade or sell, directly affecting your capital gains or losses.
Supported cost basis methods
CoinTracker supports multiple cost basis methods, and the options available vary based on your country’s tax laws. Choosing the right method can impact how much tax you owe, so it’s important to understand how each method works and what’s available in your country.
See the supported cost basis methods for US customers, or the supported cost basis methods for non-US customers.
Disclaimer: CoinTracker is provided for informational purposes and is not intended as tax, audit, accounting, investment, financial, or legal advice. For financial, tax, or legal advice, please consult your own professional. See our full disclaimer.