On October 9, 2019, the IRS provided FAQs for cryptocurrencies. Here, they explain that cryptocurrency capital gains can be calculated using the FIFO method or a Specific ID method as outlined below:
- FIFO (First-in, First-out) is the simplest, most conservative method and assumes that the cryptocurrencies purchased first are also sold first.
- HIFO (Highest-in, First-out) assumes the cryptocurrencies with the highest cost basis are sold first.
- LIFO (Last-in, First-out) assumes the cryptocurrencies purchased last are sold first.
- Specific ID allows you to specify exactly which cryptocurrencies to sell. When using a Specific ID method, which includes HIFO and LIFO, be sure to maintain accurate records of the following information:
(1) Purchase date and time from each exchange
(2) Fair market value at the time of purchase
(3) Date and time of sale, exchange, or disposal
(4) Fair market value (i.e. asset price) at the time of sale, exchange, or disposal.
Please refer to “How do I calculate my crypto income?” for more detailed information.
Compiling, analyzing, and calculating all of your hundreds, or even thousands, of crypto transactions can be an extremely daunting task to do alone. Save your energy, effort, and time by letting Cointelli calculate your capital gains for accurate data on your tax return!
DISCLAIMER: This post is for informational purposes only and should not be interpreted or relied upon as a substitute for the advice of financial, legal, or tax professionals. This content also only addresses U.S. federal income tax consequences for U.S. citizens and residents and does not address tax consequences that may be relevant to a particular person subject to special rules, such as dealers or traders. You should consult with your own financial, legal, or tax professionals to report and file your crypto taxes or make decisions on your particular circumstances. The laws, regulations, or interpretation of the existing laws could change, which may adversely affect either prospectively or retroactively. The content of this post is subject to changes.