Cost basis methods are different accounting rules for determining capital gains. Each country has different rules for which method is allowed and should be used. The most common method is FIFO (First-In First-Out) and is the recommended method in the US, Australia, and most countries in Europe. Some countries have specific methods like Adjusted Cost Base that is only used in Canada and Share Pool in the UK.

Coinpanda supports the following cost basis methods today:

  • FIFO (First In First Out)

  • LIFO (Last In First Out)

  • HIFO (Highest In First Out)

  • ACB (Average Cost Basis)

  • Adjusted Cost Base (incl. Superficial Loss Rule) - Canada specific

  • Share Pool - UK specific

Let's look at a very basic example explaining how FIFO and LIFO (Last-In First-Out) works:

David buys bitcoin on three different occasions:

  • 0.5 BTC on March 15th, 2019 for $2,100

  • 0.5 BTC on April 20th, 2019 for $2,650

  • 0.5 BTC on June 10th, 2019 for $4,500

Later, David decides to sell 1 BTC in July for $9,500. To accurately calculate his capital gains from this sale, David needs to know the cost basis for the coins he sold. Using FIFO, his cost basis becomes $2,100 + $2,650 = $4,750. By using LIFO, his cost basis becomes $4,500 + $2,650 = $7,150. The capital gains are then determined this way:

  • FIFO: $9,500 - $4,750 = $4,750

  • LIFO: $9,500 - $7,150 = $2,350

The default cost basis method in Coinpanda is FIFO as this is the most commonly used method in most countries. If you are unsure about which method you should choose, you can contact your local tax authority and ask which method can/should be used for calculating capital gains, and then change this on the Settings page.

We have also written several in-depth blog posts about cost basis and how gain/loss is calculated for cryptocurrencies:

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