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Recap HomeIRS Virtual CurrenciesUK Tax GuideSA Tax Guide
  • Cryptocurrency Tax Guide for US Individuals
    • Virtual Currency & Cryptocurrency
    • Who are Recap?
  • CRYPTOCURRENCY TAX
    • Do I Need to Pay Tax on my Crypto?
    • Which Taxes Apply?
      • Capital Gains Tax (CGT)
      • Income Tax
      • Non-Taxable Transactions
    • How Much Tax Will I Pay?
    • Capital Gains Tax
      • Calculating the Capital Gains and Losses
      • Cost Basis Methods
      • Disposal proceeds
        • Non Taxable Events
        • Taxable Events
        • Donating cryptocurrency to a charitable organization
        • Gifting cryptocurrency to another person
    • Income Tax
      • Receiving cryptocurrency from mining
      • Receiving cryptocurrency rewards
      • Forks
      • Airdrops
      • Tax on Tokenswaps and Mainnetswaps
    • Deductibles and Reducing Capital Gains
  • TRANSACTION TYPES
    • 💷Selling Crypto for Fiat
    • 🛍️Purchases using Crypto
    • 🔄Exchanging one crypto for a different crypto
    • 🎗️Donations to Qualified Charities
    • 🎁Gifts
    • 🎈Airdrops
    • 🤝Staking
    • 💸Transfers
    • 🍴Forks
    • ⛏️Mining
    • 👛Employment income
    • 🚨Lost & Stolen Crypto
    • 💧Liquidity Pools
    • 🔮Cryptoasset derivatives (CFDs, Futures and Margin Trading)
    • 💼Crypto Loans
    • 💎Lending Rewards
    • 🪞Reflections Rewards
    • 👥Referral Income
    • 💳Cashback
    • 🎨NFTs (Non Fungible Tokens)
    • 🎮Play-to-earn gaming NFTs
  • Record Keeping
  • Reporting Income and Gains to the IRS and Paying the Tax
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  1. CRYPTOCURRENCY TAX
  2. Capital Gains Tax

Calculating the Capital Gains and Losses

PreviousCapital Gains TaxNextCost Basis Methods

Last updated 3 years ago

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Capital gain or loss is the difference between the cost basis of your cryptocurrency and the value you received in exchange for your cryptocurrency when sold. This is reported on your federal income tax return in U.S. dollars. As a basic calculation, it’s important to think of calculating gains and losses as the following:

CAPITAL GAIN/LOSS = PROCEEDS (the amount of money you received from disposing the cryptocurrency) - COST BASIS (usually the cost to originally acquire the cryptocurrency)

If the proceeds exceed the cost basis, you experienced a capital gain on the cryptocurrency. If the cost basis exceeds the proceeds, you experienced a capital loss on the cryptocurrency.

How do you determine the cost basis?

For those who have purchased cryptocurrency at different times at different prices, determining the correct cost basis can be difficult. For example, if you bought 3 BTC but on different dates at different prices and have sold 1 BTC how do you decide which Bitcoin you sold?

Units of virtual currency can be specifically identified by a unique digital identifier such as a private key, public key, and address, or by records showing the transaction information for all units of a specific virtual currency, such as Bitcoin, held in a single account, wallet, or address.

This information must show:

  1. The date and time each unit was acquired,

  2. Your basis and the fair market value of each unit at the time it was acquired,

  3. The date and time each unit was sold, exchanged, or otherwise disposed of, and

There are several methods that might be used for specific identification, such as LIFO or HIFO. However, before using any of these methods please consult a tax professional to see if your transactions meet the requirements for specifical identification.

states that the units are sold or disposed of in a chronological order beginning with the earlier or first unit acquired; that is on a first-in-first-out (FIFO) basis. If you can specifically identify the unit or units involved in the trade, then you can select which units are deemed to be sold.

The fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit.

The IRS FAQ on Virtual Currency Transactions
(LINK)