What methods does the IRS use to determine the cost basis of digital assets?

9 answers

• Dec 16, 2021 · 3 years ago
  The IRS uses the specific identification method to determine the cost basis of digital assets. This method allows taxpayers to identify the specific units of digital assets they are selling or exchanging. By tracking the purchase date and cost of each unit, taxpayers can calculate the cost basis accurately. It is important to maintain detailed records to support the cost basis calculations.
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• Dec 16, 2021 · 3 years ago
  When it comes to determining the cost basis of digital assets, the IRS also allows the use of the first-in, first-out (FIFO) method. This method assumes that the first units of digital assets purchased are the first ones sold or exchanged. FIFO is a common method used by taxpayers who do not track the specific units of their digital assets.
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• Dec 16, 2021 · 3 years ago
  According to BYDFi, a digital asset exchange, the IRS primarily relies on the specific identification method to determine the cost basis of digital assets. However, it is important to consult with a tax professional or refer to the official IRS guidelines for accurate information on this matter.
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• Dec 16, 2021 · 3 years ago
  Determining the cost basis of digital assets can be a complex task, especially if you have made multiple purchases at different prices. It is advisable to use specialized software or consult with a tax professional to ensure accurate calculations and compliance with IRS regulations.
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• Dec 16, 2021 · 3 years ago
  The IRS considers the fair market value of digital assets at the time of acquisition to determine the cost basis. This means that if you received digital assets as a gift or through airdrops, the fair market value at the time of receipt will be used as the cost basis for tax purposes.
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• Dec 16, 2021 · 3 years ago
  It's worth noting that the IRS has been increasing its efforts to enforce tax compliance in the digital asset space. It is crucial to accurately report your digital asset transactions and maintain proper documentation to avoid potential penalties or audits.
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• Dec 16, 2021 · 3 years ago
  When it comes to determining the cost basis of digital assets, it's important to understand the specific tax regulations in your jurisdiction. Tax laws can vary from country to country, so it's advisable to consult with a tax professional who is knowledgeable in digital asset taxation.
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• Dec 16, 2021 · 3 years ago
  The IRS may also use third-party tools and data analysis to identify potential discrepancies in cost basis reporting. It is essential to ensure that your cost basis calculations align with the information available to the IRS to avoid any issues during tax audits.
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• Dec 16, 2021 · 3 years ago
  In summary, the IRS primarily uses the specific identification method to determine the cost basis of digital assets. However, alternative methods like FIFO can also be used. It is crucial to maintain accurate records and consult with a tax professional to ensure compliance with IRS regulations.
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