Each country uses different methods for calculating capital gains.
Cost basis methods are crucial for calculating your capital gains, and Koinly supports a variety of these methods depending on the country you file taxes in. Here’s a breakdown of how these methods work:
Common Cost Basis Methods:
FIFO (First In, First Out): The oldest deposited assets are considered the first assets sold.
LIFO (Last In, First Out): The last assets you purchased are the first ones sold.
HIFO (Highest In, First Out): Sells the assets with the highest cost basis first, minimizing your capital gains. This is available in some regions.
Optimized HIFO (USA only) - a specialised cost-basis method that uses specific lot identification to prioritise long-term gains over short-term gains.
ACB (Adjusted Cost Basis): This averages the cost of all units, adjusting for transaction fees, to calculate the cost basis.
Share Pooling: Crypto assets of the same type are pooled together, and their average cost is used to calculate gains.
PFU (France only - Prélèvement Forfaitaire Unique): Flat tax rate on capital gains and income. It is a unique cost-basis method and a variation of ACB.
Cost basis methods for different countries
Below, we will discuss the different methods used to calculate capital gains in the USA, Canada, UK, and Australia.
USA 🇺🇸
In the USA, the most common method for calculating capital gains is FIFO (First In, First Out), where the first assets purchased are considered the first assets sold.
Another method used is LIFO (Last In, First Out), which assumes the most recently purchased assets are the first to be sold.
Additionally, there's Optimized HIFO (USA only), a specialised cost-basis method that uses specific lot identification to prioritise long-term gains over short-term gains.
Canada 🇨🇦
In Canada, the most common method used to calculate capital gains is ACB (Adjusted Cost Basis). The adjusted cost basis method is the cost of an asset plus any fees related to it, such as transaction fees.
Gains/losses in Canada are also subject to the Superficial Loss Rule
UK 🇬🇧
In the UK, the method used to calculate capital gains is called Share Pooling. This method combines the cost of all assets of the same type and calculates the average cost.
For more information on the Share Pool method and how it can affect your tax calculations, see the article Share Pooling Crypto: How to Calculate Crypto Gains in the UK
Australia 🇦🇺
In Australia, two methods are used to calculate capital gains tax: FIFO and ACB. FIFO is the default method. ACB takes into account any adjustments made to the original cost of the asset, similar to the method used in Canada.
Other Countries
Koinly supports FIFO, LIFO, ACB, Shared Pool, HIFO, and even less common variations that involve wash sales (such as the FIFO used in Ireland).
You can also override the cost basis method for specific tax years. Learn more
Which cost basis method can I use?
Koinly uses recommended settings for the Home country that you selected when signing up. If you are in doubt, you can contact your tax authorities and ask them which method you should use to calculate your capital gains and change it on the Settings page.
You can also refer to our country-specific guides for guidance on selecting the correct method.
Can I change cost basis methods each year?
You can also override the cost basis method for specific tax years. You can click here to learn more - Cost basis method overrides