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Cost Basis in Virtual Currency

Much like other investments, knowing the cost basis of your cryptocurrency will be important when tax time comes. For tax purposes, cost basis is the original value or purchase price of an asset or investment. The cost basis value of an asset is used in the calculation of capital gains or losses, which is the difference between the selling price and purchase price.

The IRS has outlined some important information both determining cost basis and calculating a gain or loss with a virtual currency.

How do I determine my basis in virtual currency I purchased with real currency?

Your basis (also known as your “cost basis”) is the amount you spent to acquire the virtual currency, including fees, commissions and other acquisition costs in U.S. dollars.  Your adjusted basis is your basis increased by certain expenditures and decreased by certain deductions or credits in U.S. dollars.  For more information on basis, see Publication 551, Basis of Assets.

How do I calculate my gain or loss when I sell virtual currency for real currency? 

Your gain or loss will be the difference between your adjusted basis in the virtual currency and the amount you received in exchange for the virtual currency, which you should report on your federal income tax return in U.S. dollars.  For more information on gain or loss from sales or exchanges, see Publication 544, Sales and Other Dispositions of Assets.

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