How does the IRS determine the cost basis for cryptocurrency transactions?

3 answers

• Nov 28, 2021 · 3 years ago
  The IRS determines the cost basis for cryptocurrency transactions by considering the fair market value of the cryptocurrency at the time of acquisition. This means that if you acquired the cryptocurrency through mining, the cost basis would be the fair market value of the cryptocurrency on the day it was mined. If you purchased the cryptocurrency, the cost basis would be the amount you paid for it, including any fees or commissions. It's important to keep accurate records of your cryptocurrency transactions to ensure you report the correct cost basis to the IRS.
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• Nov 28, 2021 · 3 years ago
  When it comes to determining the cost basis for cryptocurrency transactions, the IRS uses the concept of 'first-in, first-out' (FIFO). This means that when you sell or exchange cryptocurrency, the IRS assumes that you are selling the oldest cryptocurrency in your possession first. This can have tax implications, especially if you've held onto cryptocurrency for a long time and its value has increased significantly. It's always a good idea to consult with a tax professional to ensure you are reporting your cryptocurrency transactions correctly and taking advantage of any available tax strategies.
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• Nov 28, 2021 · 3 years ago
  The IRS determines the cost basis for cryptocurrency transactions based on the specific identification method. This method allows you to choose which specific units of cryptocurrency you are selling or exchanging. By identifying the specific units, you can potentially minimize your tax liability by selecting units with a higher cost basis. However, this method requires detailed record-keeping and documentation to support your chosen identification. It's important to consult with a tax professional to understand the specific identification method and ensure you are complying with IRS regulations.
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