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How is Cost Basis Calculated for Digital Assets?

Basis reporting on Form 1099-DA

On Form 1099-DA, basis reporting is mandatory after 2025 for covered transactions, i.e., any digital asset acquired on or after January 1, 2025.

The basis of non-covered transactions (any digital asset acquired before 2025) is not required to be reported on Form 1099-DA. Thus, it is the taxpayer's responsibility to determine the basis of their digital assets acquired before 2025. Without any documents or statements to determine basis, the IRS will treat the cost basis as zero and the entire sale as a capital gain.

Determining the basis of a digital asset

The original basis of a digital asset is determined by how and when the digital asset was acquired.

The IRS allowed a one-time allocation to calculate basis across wallets by moving all digital assets into a single account before Dec 31, 2024. The taxpayer could then either (a) do a global allocation of all costs associated with acquiring their digital assets as their cost basis, or (b) assign basis to individual assets based on purchase details. This election was irrevocable and had to be completed by January 1, 2025.

A taxpayer that did not move all digital assets into a single account by Dec 31, 2024, must assign basis to individual assets based on specific purchase details.

For 2025, the taxpayer has a few options. If the taxpayer has historically made multiple purchases of the same digital asset, they can use any of the following methods to assign basis to the transaction. 

  • FIFO (First In, First Out)
  • LIFO (Last In, First Out)
  • HIFO (Highest In, First Out)
  • Specific Identification

FIFO is mandatory beginning in 2026.

Resources to help determine basis

Here are some resources that the taxpayer can review to calculate their basis for purchased digital assets:

  1. Obtain purchase receipts or confirmations from the exchanges. Most exchanges (e.g., Coinbase, Binance, Kraken) have a “Transaction History” or “Activity” report. A report such as this shows the date and time of each transaction, the asset type and quantity, the price at execution, the fees paid, and the total value in fiat currency, e.g., USD.
  2. Download tax reports or CSV (Comma-Separated File) files from the exchange. These reports often contain the cost basis, proceeds, and gains and losses.
  3. Obtain the Wallet History if using a non-custodial wallet. These types of wallets will allow the owner to export the Wallet History into spreadsheet software.
  4. Use Blockchain Explorers to trace transactions. The taxpayer can match dates and amounts to reconstruct basis.

If the digital asset was received as a reward, award, or payment for goods or services, the cost basis will be the amount of taxable income that was generated by the transaction.

A taxpayer that owns any digital assets needs to keep detailed and accurate records to substantiate the cost basis. Taxpayers do not always have these records so need encouragement to track their transaction and basis information as they buy and sell crypto currency and other digital assets.

Remember that in the absence of documentation to support the basis calculation, the IRS will treat the basis as zero.

Additional Information:

The following IRS references will aid in understanding the tax treatment of virtual currency and help you prepare the tax return for a taxpayer who engages in virtual currency transactions.