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For U.S. federal income tax purposes, calculate cryptocurrency cost basis for each acquisition in U.S. dollars, then compare the basis of the specific units disposed of with the amount realized. A crypto-to-crypto swap generally disposes of the crypto you give up; moving crypto between wallets you own generally does not, although crypto paid as a fee may be a separate taxable disposition. This guide addresses individuals holding digital assets as capital assets, not every business, income, DeFi, state, or non-U.S. tax situation.
What is crypto cost basis?
Cost basis is generally what you paid to acquire an asset, adjusted as applicable. The IRS’s 2025 Instructions for Form 8949 say that digital-asset basis includes the cost to acquire the asset, including transaction fees, commissions, transfer taxes, and other acquisition costs. Keep the records for each acquisition lot rather than relying on a single portfolio-wide average.
For each lot, record the asset, units, acquisition date and time, U.S.-dollar fair market value, qualifying acquisition costs, and resulting basis. At a taxable disposition, compare the adjusted basis of the units treated as disposed of with the amount realized, both expressed in U.S. dollars. The difference is generally the gain or loss.
- Purchase: Record the amount paid, units received, and qualifying costs of acquiring them.
- Receipt valued in crypto: Preserve the U.S.-dollar fair market value and timestamp used to establish the acquisition value. If the receipt was income or compensation, report it under the applicable income rules as well; its tax treatment is not necessarily the same as an ordinary purchase.
- Disposition: Record the units disposed of, date and time, U.S.-dollar value, fees, and the lots identified as sold.
How do you calculate basis for a purchase or crypto receipt?
Buying through an exchange
Record the exchange’s value for the acquisition, the quantity received, and qualifying costs. IRS FAQ 26 says the value recorded by an exchange is the fair market value for an exchange-facilitated acquisition. Keep the exchange statement or export as valuation evidence.
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For a peer-to-peer or other non-exchange receipt, IRS FAQ 27 uses fair market value at the time recorded on the distributed ledger. A blockchain explorer that analyzes worldwide indices may provide evidence if it accurately represents fair market value. Preserve the valuation source, timestamp, method, and any uncertainty.
Receiving crypto as income or compensation
Do not automatically treat an income or compensation receipt as if it were a cash purchase. Preserve the reported U.S.-dollar income value and acquisition timestamp, then apply the relevant income and basis rules. Business, staking, mining, and other specialized receipts may require additional analysis and reporting.
How do you calculate gain or loss on a crypto sale?
First determine which units were disposed of and their adjusted basis. Then compare that basis with the U.S.-dollar amount realized, applying any transaction costs under the rules for the particular disposition. Keep the arithmetic tied to the actual lot, quantity, and timestamp; a portfolio’s overall average purchase price does not by itself establish the basis of the units sold.
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Illustration: Suppose you dispose of units with an adjusted basis of $600 for $1,000, and a $10 cash fee is allocable to that disposition. If the fee reduces the amount realized under the applicable treatment, the calculation is $1,000 − $10 − $600 = $390 gain. This simplified example assumes the stated values and fee allocation; it does not determine which units were sold or resolve other adjustments.
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Generally, yes: exchanging one digital asset for another is a disposition of the asset surrendered. Calculate the amount realized in U.S. dollars, subtract the adjusted basis of the units surrendered, and track the received asset as a new acquisition.
IRS FAQ 72 says the basis of a different digital asset received in an exchange is its cost, equal to the fair market value used to determine the amount realized on the asset transferred. Exchange transaction costs are allocable to the disposed asset and may not be added to the received asset’s basis. For example, if the transferred asset’s fair market value is $1,000 and the surrendered units have $600 of basis, the received asset generally starts with $1,000 basis under that rule; any exchange transaction costs must be handled on the disposed asset’s side of the calculation, not added to the new asset’s basis.
How should you handle crypto transaction fees?
IRS FAQ 53 defines digital-asset transaction costs as cash or property paid for services to effect a purchase, sale, or disposition. Examples include transaction or gas fees, transfer taxes, and commissions. Record the fee amount, what asset paid it, its U.S.-dollar value, and the timestamp so it can be treated correctly.
If you pay or have crypto withheld to cover a service fee, the crypto used to pay the fee is itself disposed of and may produce a separate gain or loss. This can be true even when the fee also qualifies as a transaction cost for the related purchase, sale, or disposition. Keep the fee-asset disposal as a distinct record; do not assume a fee paid in crypto is merely a dollar-denominated expense.
Is transferring crypto between your own wallets taxable?
A transfer between wallets, addresses, or accounts belonging to the same taxpayer generally is not a taxable disposition, does not create new basis, and does not restart the holding period. Carry the original lot history forward and preserve enough information to match the outgoing and incoming transactions: transaction IDs or hashes, addresses or accounts, asset, quantity, date and time, and any fee.
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A fee paid for a service solely to move assets between your own wallets or accounts is not a digital-asset transaction cost under IRS FAQ 53. But if crypto is used to pay that fee, the crypto used may still be a separate disposition. An exchange may issue an information return for a transfer; that reporting does not, by itself, make an own-wallet transfer taxable.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How do you identify which units were sold?
Tax lot identification is not the same as tracking where tokens physically moved. Under current IRS FAQ guidance, specific identification may be used when its requirements are met; if it is not properly made, a default chronological identification rule generally applies. Which rule and records matter depend on the disposition date and custody arrangement.
| Situation | Identification rule or recordkeeping point |
|---|---|
| Broker-custodied disposition after December 31, 2025 | Identify the particular units to the broker no later than the date and time of disposition, using identifiers the broker designates as sufficiently specific, and retain supporting records. |
| Qualifying broker-custodied disposition during 2025 | IRS Notice 2025-7 provides temporary alternative identification relief, including an eligible books-and-records method. Follow the notice’s conditions; do not assume an alternative method applies retroactively or without qualification. |
| Units in an unhosted wallet | Keep records that satisfy specific-identification requirements. If they are not met, the default generally treats the earliest-acquired units in that wallet as disposed of first, without regard to when units were transferred into it. |
| Hosted wallet that is not a broker account | The IRS FAQs distinguish this custody arrangement from both broker accounts and unhosted wallets. Apply the identification rules for the actual custody and transaction facts. |
| Units held before January 1, 2025 | Revenue Procedure 2024-28 provides transitional guidance for reasonably allocating unattached basis to remaining units by wallet or account as of that date. It is a transition rule, not a continuing universal pool for later dispositions. |
Maintain acquisition chronology, basis support, and evidence of any timely specific identification. If you cannot establish the required identification, do not simply choose the lot with the most favorable tax result; determine which default rule applies to the facts.
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What records should you keep?
The IRS says records should be sufficient to establish the positions on a federal return, including receipts, sales, exchanges, dispositions or transfers, and fair market value. Keep the materials that support both the calculation and the identity of the units involved:
- Exchange statements, transaction exports, and any broker communications about unit identifiers.
- Wallet addresses, transaction hashes, and records matching transfers between accounts you own.
- Purchase, receipt, sale, swap, and fee details, including asset quantities and timestamps.
- U.S.-dollar valuation evidence and the source and conversion method used.
- Basis-lot calculations, holding-period support, and records of specific identification.
If exchange data is missing, treat it as a reconstruction problem: document the source, timestamp, conversion method, and uncertainty rather than filling gaps with unsupported values. Uncertain historical basis, high-value transactions, business activity, or complex DeFi transactions may warrant help from a qualified tax professional.
How do you report crypto dispositions on a federal return?
For digital assets held as capital assets, report sales and other dispositions on Form 8949 and summarize them on Schedule D. The 2025 Form 8949 instructions use boxes G, H, and I for short-term digital-asset transactions and J, K, and L for long-term digital-asset transactions; the specific box depends on basis reporting and the statement received. Some transactions with basis reported and no adjustments may qualify for summary reporting directly on Schedule D. Check the instructions for the return year being filed because form requirements can change.
Form 1099-DA reporting is phased in, not universal or complete. IRS guidance says gross-proceeds reporting begins for covered transactions effected on or after January 1, 2025, while basis reporting applies to certain covered transactions on or after January 1, 2026. A form may therefore omit basis, and a missing reported basis does not mean your basis is zero. Reconcile broker documents with your own lot and transaction records.
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