Cost Basis Calculation is the process of determining the original value of an asset for tax and accounting purposes, including its purchase price and any associated transaction fees, essential for accurately assessing capital gains or losses upon its disposition.
Mechanism
This calculation requires meticulous tracking of each acquisition, factoring in purchase price, commissions, and other directly attributable costs. For digital assets, the mechanism must account for various acquisition events, such as direct purchases, mining rewards, or staking yields, and link them to subsequent sales or transfers.
Methodology
Several accounting methods, including First-In, First-Out (FIFO), Last-In, First-Out (LIFO), and Specific Identification, are applied to match disposed assets with their corresponding acquisition costs. The chosen methodology significantly influences the calculated gain or loss, impacting tax liabilities and requiring precise transactional record-keeping within crypto portfolio management systems.
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