Hi lpfaust,
A couple of questions regarding "What is Basis?"
- Could you explain how cost basis is computed when you have your virtual currency (say, BTC) spread across multiple places, like multiple exchanges? Do you compute cost basis/capital gain in a FIFO manner across all of them (irrespective of where you keep each portion), or separately for each exchange? For instance, consider the following series of purchase and sell transactions:
echange, date, purchase/sell, amt, rate
E1, d1, purchase, 2 BTC, 1 BTC = $1000
E2, d2, purchase, 2 BTC, 1 BTC = $2000
E1, d3, purchase, 2 BTC, 1 BTC = $3000
E2, d4, purchase, 2 BTC, 1 BTC = $4000
E1, d5, sell, 4 BTC, 1 BTC = $5000
We have two options here:
(a) Consider all of our holdings as one big pile irrespective of where they reside, and handle it in a FIFO manner across all of them, so capital gain is: (4 BTC x $5000) - (2 BTC x $1000 + 2 BCT x $2000) = $14000.
(b) Handle each exchange independently, and handle the transactions within that exchange in a FIFO manner, so capital gain is: (4 BTC x $5000) - (2 BTC x $1000 + 2 BCT x $3000) = $12000
Option (a) seems much more natural to me, but I wanted to make sure that's indeed what the law says, if it addresses this aspect at all. - This is a follow-up question in case the answer to my first question is (a). Suppose that a couple files jointly with the IRS. Each has their own virtual currency account in an exchange. Each performs a series of purchase and sell transactions. In order to correctly compute cost basis and consequently capital gain, do we use a FIFO system across the accounts or in each account independently?
Thanks much for your insights!