Cost basis

Cost basis is what you spent to acquire an asset, including fees. It is subtracted from the sale price to find your taxable gain or loss.

How it works

If you bought a coin once, it is simple: cost basis is the price plus the fee. It gets tricky when you bought in parts at different prices and sell only some. Then you need to decide which coins you actually sold.

There are methods for this. FIFO (first in, first out) assumes the oldest purchases are sold first. LIFO assumes the newest. Average cost uses the average price of all purchases. Specific identification lets you name the exact lot. Which methods are allowed depends on the country, and you often have to use the chosen one consistently.

You also need a cost basis for crypto you did not pay money for. If you received staking rewards or an airdrop and they were taxed as income, their cost basis is often the market price on the day you received them.

Example with numbers

You bought 1 ETH for $2,000, then another 1 ETH for $3,000, and later sold 1 ETH for $3,500. Under FIFO the gain is $3,500 − $2,000 = $1,500. Under LIFO it is $500. Under average cost ($2,500) it is $1,000. Same sale, three different results.

Common mistake

A mistake is not recording purchase prices and later guessing the cost basis or treating it as zero. A zero basis means the whole sale counts as profit, so the tax is overstated. Save every purchase with its price and fee, and find out which method your country allows.

Questions and answers

What is cost basis in simple terms?

It is what you actually paid for an asset, fees included. Your gain is the sale price minus that amount.

Which cost basis method should I use, FIFO or average?

It depends on what your country allows. Some set the method by law, others give a choice, but you must apply it consistently.

What if I do not know what I paid for my crypto?

Try to rebuild it from exchange history, bank statements and a block explorer. If that fails, ask a tax professional how your country's rules handle it.

Cost basis

How it works

Questions and answers

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