How is the Cost Basis Used for Tax Purposes?

With cryptocurrency being treated as a capital asset by the IRS; you're taxed not upon acquiring an asset, but rather when you dispose of an asset (sell it, trade it away etc.). The amount that you're taxed on is any gains in value between the acquisition date and disposal date.

If we were to show how cost basis is used for calculating gains or losses for tax purposes, it would look like this:

Proceeds - Cost basis = Gains or Losses

Example: You buy 1 BTC on January 1st for $10,000. Four weeks later, you sell that 1 BTC for $12,000. You've realized a gain of $2,000. Your cost basis was $10,000, your disposal value was $12,000.

If you click on the Sale transaction, you can see the details of how the gain or loss is being calculated.

• FAQ: If I've made multiple purchases of an asset before disposing of any, how does TaxBit know which assets to link together? That will depend on which Accounting Method you've set your account to. See this blog article for more details.

Related Questions:

• What is Cost Basis?
• What is a “cost basis pool?”
• How can I see the cost basis of my completed transactions?

Looking for more information? Reach out to our Support Team and we would be happy to help with any questions you may have.