Understanding your bitcoin cost basis is useful for determining the purchase price of your bitcoin, which may be relevant for tax purposes. The cost basis is what you paid for your bitcoin, including any fees. This becomes important when you sell bitcoin, as the difference between the sale price and the cost basis indicates whether you’ve made a profit (capital gain) or a loss (capital loss).

Different methods exist for tracking cost basis, and the one you use depends on your country and the relevant tax laws that apply to you. Common methods include First-In-First-Out (FIFO); Last-In-First-Out (LIFO); and Highest-In-First-Out (HIFO). You can download your trading history to calculate your cost basis for yourself. At Strike, a cost basis calculation is also provided on your 1099-B using HIFO.

Example of a HIFO cost basis calculation:

• January: You bought 0.05 bitcoin at $35,000/BTC for a cost of $1,750, or $1,767.50 with fees included.
• June: You bought 0.03 bitcoin at $45,000/BTC for a cost of $1,350, or $1,363.50 with fees included.
• December: You sold 0.04 bitcoin at $55,000/BTC for a sale revenue of $2,200, or $2,178.00 with fees deducted.

Overall, you purchased 0.08 bitcoin, spending a total of $3,131.00, and sold 0.04 bitcoin, receiving a total of $2,178.00. To determine whether the sale of 0.04 bitcoin resulted in a capital gain or loss, you must determine the cost basis at which the 0.04 bitcoin was acquired. Using HIFO, you use the highest cost first:

1. Use the entire June purchase of 0.03 bitcoin at $45,000, which cost $1,363.50 (fees included).
2. Use a portion of the January purchase of 0.05 bitcoin at $35,000/BTC to account for the remaining 0.01 bitcoin of the sale: (0.01 / 0.005) X $1,767.50 = $353.50

The total cost basis for the 0.04 bitcoin sold is $1,717.00 ($1,363.50 + $353.50).

The sale, after fees, totaled $2,178.00, which means the capital gain was $461.00 ($2,178.00 - $1,717.00). This example illustrates how fees and the HIFO method impact your reported gains or losses for tax purposes.

Strike does not provide tax advice. These FAQs are for informational purposes only and shouldn’t be considered tax advice or recommendations. Please consult a professional regarding the tax implications of buying and selling bitcoin.