Originally Posted by Wnhough
So what would my cost basis be? Would it be the original $4086.60 when I purchase Ethereum the few days before?=========> As long as the IRS treats bitcoin as property, then whenever you use bitcoin to buy anything you are supposed to consider the capital gain or capital loss; you, as a taxpayer,may feel a cryptocurrency split such as Bitcoin Cash qualifies as a tax-free exchange. The IRS taxes bitcoin like property, so until it's converted to fiat, it is not taxed. Your basis in Bitcoin will be the number of bitcoin received times the exchange rate on the date you received them. The IRS will know the date you received the Bitcoin and can pretty easily look up the exchange rate on that date.
It is also important to note that if you receive the Bitcoin as compensation for services, you should have reported the basis as ordinary revenue when received.
Do I need to figure out the average price Ethereum was on the day I exchange ETH for XRP and use that as a selling price for ETH====>>as mentioned above
My question is not about Bitcoin, but I guess in principle, the IRS rules relate to all cryptocurrency. No goods were purchased with any of my cryptocurrency. The original purchase of Ethereum was strictly for investment purposes, not for buying goods.
I been reading a lot online about like-kind exchanges, and I do not think that exchanging Ethereum for Ripple would qualify for tax deferral.
I think a realistic and good faith approach would be:
1) Establish the USD value at the time of purchasing Ethereum. (This is easy because the purchase was made in USD). ($4086.60 USD)
2) Upon transferring Ethereum to another exchange to buy Ripple, establish the USD value at the time of transfer. (ex: $4127.99 USD according to Etherscan) This will establish my total gain for Ethereum at about $40 USD.
3) In the new online exchange, get rate of conversion for Ethereum/Ripple as indicated in the exchange rate .8389 XRP/ETH at the time of purchasing Ripple.
4) I received 5,795.3610 Ripple. So my new cost basis for XRP would be $.71. ($5795.3610 / $4127.99 = $0.71)
Is this reasonable to establish cost basis in the new currency?