Cost Basis

Cost basis is the original value of an asset for tax purposes, usually the purchase price plus any acquisition costs such as trading fees. When crypto is sold or otherwise disposed of, the taxable gain or loss is calculated as the sale proceeds minus the cost basis, which makes accurate basis records the foundation of crypto tax reporting.

For example, if someone buys 0.1 BTC for 5,000 units of their local currency including fees, their cost basis is 5,000; selling that 0.1 BTC later for 7,000 produces a 2,000 capital gain. Complications arise quickly in practice: coins received from staking, mining, or airdrops typically take a basis equal to their market value when received, and coins moved between your own wallets keep their original basis. When someone has bought the same asset at many different prices, jurisdictions allow or mandate different accounting methods, such as first-in-first-out, average cost, or specific identification, and the chosen method can significantly change the reported gain.

A common misconception is that transferring crypto to a new wallet or exchange resets the basis; a self-transfer is not a disposal, and the original basis carries over. Missing basis records are a frequent problem for long-time holders, since without documentation some tax authorities may treat the basis as zero, taxing the entire sale amount. Rules and permitted methods differ by jurisdiction.