How it works
Basis is what you paid to acquire the asset, including trading fees. For crypto received rather than purchased, basis equals the fair market value you reported as income when you received it: staking rewards, mining, airdrops, or wages. When you dispose of the asset, gain or loss is the amount realized minus the basis of the specific units disposed of. Since January 1, 2025, basis must be tracked per wallet or account rather than pooled across everything you own.
Why it matters
Missing basis is the most expensive gap in crypto tax. If you cannot document what you paid, the IRS treats basis as zero and taxes the full sale price. Basis also determines whether gain is short-term or long-term, since the units you identify carry their own acquisition dates.
Example
You bought 1 BTC for 30,000 dollars plus a 50 dollar fee, then later received 0.1 BTC as a staking reward worth 4,000 dollars, which you reported as income. Your basis is 30,050 dollars in the first lot and 4,000 dollars in the second. Selling all 1.1 BTC for 60,000 dollars produces gain of 25,950 dollars, not 60,000.
Related: specific identification, FIFO, wallet-by-wallet accounting. Read more: crypto cost basis guide.
