What cost basis means for crypto
- Bought with dollars. According to the IRS virtual currency FAQs, your basis is the amount you spent to acquire the crypto, including fees, commissions, and other acquisition costs, in U.S. dollars.
- Received as payment or income. The basis is the fair market value in U.S. dollars when you received it.
- Gain or loss. It is the difference between what you received when you sold or exchanged the crypto and your adjusted basis.
So the same sale can show a large gain or a small one depending on the acquisition record behind it. A missing record is not a zero cost; it is a gap to fill.
How to determine your cost basis
- Find the acquisition. In the exchange or wallet history, note the date and time, units, the U.S. dollar amount paid, and the fees.
- For rewards or payments, note the U.S. dollar value at the time you received the crypto.
- Follow transfers back. If the coins arrived from another account, the acquisition is in the sending account’s history. A transfer between your own accounts is not a sale, so the original purchase record remains the evidence.
- Keep the source. Save the export or statement that shows each figure, so the number can be checked later.
If the purchase history is missing, see missing crypto cost basis for where to look.
Demo: one sale, two acquisition lots
Fictional records · No tax calculation.
- Lot A $6,050
- 0.10 BTC bought in March for $6,000 plus a $50 fee.
- Lot B $9,040
- 0.10 BTC bought in November for $9,000 plus a $40 fee.
- Sale 0.10 BTC
- Sold the next year from the same account.
Under FIFO the sale uses Lot A, so the basis is $6,050. If Lot B was specifically identified in time, the basis is $9,040. Same sale, different basis, which is why the identification and its record matter.
FIFO and specific identification
- FIFO by default. The IRS FAQs say that if you do not identify specific units, they are treated as disposed of in chronological order, first in, first out.
- Specific identification. You may choose which units you sold if you can identify them and substantiate their basis. The records must show when each unit was acquired, its basis and value at acquisition, and when it was sold and for how much.
- HIFO and LIFO are ways of choosing units under specific identification, such as the highest-cost or the most recent units. They work only when the identification is made and recorded in time.
- Average cost, used for some mutual funds, is not among the methods the 2024 digital asset regulations describe.
At a broker, the default is also the earliest units first, according to the IRS instructions for Form 1099-DA. Which method fits your situation is a decision for you and your tax preparer; see 1099-DA cost basis mismatch for how a broker’s lot order can differ from your software.
Wallet-by-wallet basis from 2025
According to Rev. Proc. 2024-28, the 2024 regulations apply specific identification or FIFO to units held within a single wallet or account for acquisitions and dispositions on or after January 1, 2025. Before that, some taxpayers tracked basis in one pool across all wallets.
The revenue procedure gives a safe harbor to allocate unused basis to each wallet or account as of January 1, 2025. The allocation is irrevocable, and it sets deadlines tied to the first 2025 disposition and the 2025 return. Whether and how it applies to you is a question for your preparer; what you need is a holdings snapshot per wallet and account as of January 1, 2025, with the basis behind it.
Records to keep for each lot
- Account or wallet, asset, and number of units.
- Date and time acquired, and the U.S. dollar amount paid including fees, or the value when received.
- Transfers between your own accounts, with transaction IDs.
- Date and time sold or exchanged, and the amount received.
- The export or statement each figure came from.
The illustrative record package shows how lots, transfers, and open questions fit together.
Crypto cost basis FAQ
What is cost basis in crypto?
It is what you paid to acquire the crypto in U.S. dollars, including fees, or its value when you received it as income. Gain or loss is the amount received minus the adjusted basis.
Do fees count toward cost basis?
Yes. The IRS FAQs include fees, commissions, and other acquisition costs in the basis of crypto bought with dollars.
What happens if I do not identify which units I sold?
The IRS FAQs treat the units as sold in chronological order, first in, first out. Since 2025 this applies within each wallet or account.
Can I use HIFO for crypto?
HIFO is a way of choosing units under specific identification. It requires identifying the units and keeping the records no later than the sale; whether to use it is a decision for you and your tax preparer.
When a records review can help
If your history spans several exchanges and wallets, or the purchase side is missing for coins you moved, Elena’s transaction cleanup rebuilds the acquisition history lot by lot and documents each source, within an agreed scope. Tax advice, return preparation, and filing are not included.
For your first inquiry, list the accounts, the years, and the software you use.
Sources
Related recordkeeping guides