Trying to figure out how much profit you’ve made from crypto can be confusing, especially when you’ve traded across multiple platforms or bought at different prices. And when tax season rolls around, not knowing your cost basis could lead to misreporting your gains or paying more taxes than you should.
This guide will help you understand what crypto cost basis is, why it’s important, and how to calculate it accurately. Whether you’re a beginner or just trying to stay IRS-compliant, we’ll walk you through the different methods, examples, and smart tools that make tracking your profits easier.
How Is Cryptocurrency Taxed in the US?
In the United States, the IRS treats cryptocurrency as property, not currency. This means that anytime you sell, trade, or use your crypto, it’s considered a taxable event. You’ll either owe capital gains tax or report capital losses based on how the price changed since you acquired the asset.
Common taxable events include:
- Selling crypto for US dollars or any fiat currency
- Trading one cryptocurrency for another (like swapping BTC for ETH)
- Using crypto to buy goods or services
If you earn crypto through mining, staking, or airdrops, the value of the reward at the time you receive it is taxed as ordinary income. Once you later sell or trade that crypto, you may also owe capital gains tax depending on how much the value has changed.
Read More: Crypto Taxes in the USA: Ultimate Guide
What Is Crypto Cost Basis?
Crypto cost basis is the amount you paid to acquire your cryptocurrency. It includes the purchase price plus any transaction or gas fees. This number is important because it helps you figure out how much profit or loss you made when you sell, trade, or spend your crypto.
For example, if you bought $1,000 worth of ETH and paid $30 in fees, your cost basis would be $1,030. When you eventually sell that ETH, your gain or loss will be the difference between the sale price and this cost basis.
Read More: Crypto Accounting Methods in 2025
Why Does Crypto Cost Basis Matter?
Your cost basis is the foundation for calculating capital gains or losses. Without it, you can’t accurately report your profits to the IRS. If your cost basis is too low, you might overpay in taxes. If it’s too high, you risk underreporting and facing penalties.
Knowing your cost basis helps you:
- Calculate the correct tax amount on crypto disposals
- Prove your profit or loss during an audit
- Track your investment performance over time
It’s one of the most important numbers in crypto tax reporting, and getting it right can save you money.
What Are the Different Crypto Cost Basis Methods?
When you buy crypto at different prices over time, you need to choose a cost basis method to decide which batch of coins you’re selling. The method you pick can affect your capital gains and taxes.
FIFO (First-In, First-Out)
FIFO means the first crypto you bought is the first one you sell. It’s the default method under IRS rules. If you bought BTC at $30,000 and again at $40,000, FIFO assumes you sold the $30,000 coin first. If you sell BTC at $45,000 using FIFO, your cost basis is $30,000 and your gain is $15,000. FIFO usually results in higher taxes during bull markets.
LIFO (Last-In, First-Out)
LIFO assumes the most recent coins you bought are sold first. This method can reduce your taxable gains in a rising market. For example, if you bought BTC at $30,000, $40,000, and $38,000, LIFO would use the $38,000 coin as the cost basis for your sale. If you sell for $45,000, your capital gain would be $7,000. LIFO isn’t the IRS default, but it’s still allowed.
HIFO (Highest-In, First-Out)
HIFO lets you sell the most expensive crypto first. It’s often the best choice for lowering capital gains. If you bought BTC at $30,000, $38,000, and $40,000, HIFO uses the $40,000 coin as your cost basis. Selling at $45,000 would give you a $5,000 gain , lower than FIFO or LIFO. This method minimizes taxes but requires consistent and accurate tracking.
Read More: IRS Crypto Tax Report Checklist
How to Calculate Cost Basis for Your Crypto?
There are different ways to acquire crypto, and each one affects how you calculate your cost basis. Here’s how it works for common transaction types.
Buying Crypto with Fiat
When you buy crypto using dollars or any fiat currency, your cost basis is the total amount you spent, including any fees. This is the most straightforward way to determine your starting value.
Formula
Cost Basis = Purchase Price + Transaction Fees |
Example
Emma buys $800 worth of BTC and pays a $20 fee. Her cost basis is $820.
Crypto-to-Crypto Trades
When you trade one crypto for another, the cost basis of the new crypto is based on the fair market value of what you gave up at the time of the trade. This value also becomes your proceeds for the disposed asset.
Formula
Cost Basis of New Crypto = Fair Market Value of Crypto Given Up + Trade Fees |
Example
Jack trades $1,500 worth of BTC for ETH. He pays a $25 fee. His cost basis in ETH is $1,525.
Airdrops, Staking, and Mining Rewards
If you receive crypto through an airdrop, staking reward, or mining, the cost basis is the fair market value of the tokens at the time you received them. This value is also counted as income.
Formula
Cost Basis = Fair Market Value at Time of Receipt |
Example
Brian earns 50 ADA through staking, worth $75 at the time. His cost basis is $75.
Grypto Gifts
For gifted crypto, the cost basis depends on the giver’s original purchase price and the asset’s value at the time of the gift. In most cases, you inherit the giver’s cost basis if the value has appreciated.
Formula
Cost Basis = Giver’s Original Cost Basis (if value increased) |
Example
Lena receives 0.5 ETH as a gift. The giver originally paid $600. That $600 becomes Lena’s cost basis.
Wallet Transfers
If you transfer crypto between wallets you own, your cost basis remains the same. The original acquisition cost moves along with the coins to the new wallet.
Formula
Cost Basis = Original Purchase Price (no change due to transfer) |
Example
Tom buys 1 BTC for $10,000 in Wallet A and transfers it to Wallet B. The cost basis stays $10,000.
Read More: How to Report Crypto on Your Taxes?
Can You Switch Cost Basis Methods Every Year?
Yes, you can switch cost basis methods each year, but it’s not always recommended. Changing from FIFO to HIFO or LIFO may create record-keeping problems if you don’t track every transaction carefully. The IRS expects consistency, and using the same batch of crypto twice by mistake could lead to penalties.
If you plan to change methods, it’s a good idea to consult a tax professional and use a crypto tax tool to avoid errors. Consistency helps prevent confusion and ensures your tax reports are accurate.
Read More: How To Avoid Capital Gains Tax in USA
What Is Per-Wallet Cost Basis Tracking (New IRS Rule)?
Starting in the 2025 tax year, the IRS will require investors to track cost basis on a per-wallet or per-account basis. This means you must calculate gains and losses based on the wallet where the crypto was bought and sold, not across your entire portfolio.
For example, if you buy 1 BTC for $20,000 on Exchange A and another for $25,000 on Exchange B, and later sell from Exchange B, your cost basis is $25,000, not the lower $20,000. Each wallet now tracks its own cost basis separately.
Read More: Crypto Tax Evasion in USA
How to Determine Cost Basis If You Don’t Have Records?
If you’ve lost track of your crypto purchase details, you may still be able to estimate your cost basis using historical price data from the date you acquired the asset. Many tax tools and blockchain explorers can help you find the price at that time.
However, if you can’t determine the acquisition date or price, the IRS may expect you to treat your cost basis as $0. That means the full amount you receive from a sale will be taxed as a capital gain, which could lead to a much higher tax bill.
Read More: Understanding IRS Revenue Procedure
Do Exchanges Like Coinbase Show Cost Basis?
Yes, most major exchanges like Coinbase provide cost basis details for crypto you buy directly on their platform. You can usually find this information in your transaction history or tax reports.
However, exchanges don’t track the cost basis of crypto you transfer in from other wallets or platforms. If you move assets between wallets or exchanges, you’ll need to keep your own records or use crypto tax software to calculate the correct cost basis for those assets.
How KoinX Helps You Track and Calculate Your Crypto Cost Basis?
Tracking your cost basis gets difficult when you trade across multiple wallets, exchanges, or blockchains. Manual tracking can lead to errors, missed gains, or even tax notices from the IRS. That’s where KoinX becomes the smarter way to manage everything in one place.
Connect Over 300 Wallets and Exchanges
KoinX supports automatic imports from more than 300 platforms. Whether you use centralized exchanges or DeFi wallets, your transactions are synced instantly, no spreadsheets required.
Automatic Categorisation of Crypto Activity
Every buy, sell, swap, reward, or transfer is auto-tagged based on its type. This removes confusion and ensures each transaction is handled correctly for cost basis and tax reporting.
IRS-Compliant Tax Calculations
KoinX follows official IRS guidelines and supports FIFO, LIFO, and HIFO accounting methods. Your capital gains, losses, and income are calculated accurately, just the way the IRS expects.
Full Support for DeFi and NFTs
DeFi users and NFT collectors often face challenges with cost tracking. KoinX simplifies this by recognizing wallet-to-wallet transfers, liquidity pool events, NFT mints, and more.
Data Safety and Accuracy
Your data is encrypted and stored securely. KoinX never asks for private keys, and all calculations are audit-ready in case the IRS asks for documentation.
Thousands of US crypto investors rely on KoinX to track their cost basis, reduce errors, and file their taxes with confidence. You can, too, join KoinX today and start simplifying your reporting.
Conclusion
Understanding your crypto cost basis is essential for tracking your profits and filing accurate tax returns. Whether you’re trading regularly or holding long term, knowing how to calculate gains and losses can save you from IRS mistakes and unnecessary tax bills.
If you’re tired of juggling spreadsheets or missing transaction data, KoinX gives you everything you need in one place. It tracks your cost basis, syncs your trades, and prepares accurate reports. Join KoinX today and make tax time stress-free.
Frequently Asked Questions
Can I Use Different Cost Basis Methods for Different Wallets?
Yes, if you manage multiple wallets, you can apply different cost basis methods to each—provided you track them accurately and consistently. However, switching methods across wallets may create confusion during tax filing, so it’s important to maintain clear records and stick with the chosen method unless advised otherwise by a tax professional.
Does Cost Basis Change After a Hard Fork?
When a hard fork occurs, the cost basis for the newly received tokens is typically the fair market value at the time you gained control over them. If there was no immediate market value, it might be considered zero until one becomes available. Always consult a tax expert for unusual situations like forks or chain splits.
Can Cost Basis Be Negative in Crypto Taxes?
No, your cost basis can never be negative. At minimum, it’s zero if no acquisition value is known. If you sell or dispose of an asset with no records or cost data, your entire proceeds may be treated as a gain, but the cost basis itself will always start at zero or above—not below.
Are Gas Fees Always Included in Cost Basis?
Gas fees can be included in your cost basis if they are directly related to acquiring or disposing of an asset. However, gas fees for unrelated transactions like transferring tokens between wallets may not count. It’s essential to distinguish which fees relate to taxable events and which are simply operational costs.
What If I Receive Crypto as Part of a Promotion?
If you receive crypto as part of a promotion or referral bonus, it is treated as ordinary income based on its fair market value at the time you received it. That value also becomes your cost basis for any future sale or trade. Always record the value on the date you receive the reward.
