Quote from: bitquad on Today at 05:33:30 AM

Hi,

Let's say you purchase crypto assets via a dollar cost average method every month for 5 years. Or you mined BTC or ETH (when it was POW) over a period of 5 years. Each month your BTC or ETH balance increases. The asset prices go up and down during this period. Which means your purchase price varies over this time period.

Then in the 6th year you cash out say 1 BTC or 10 ETH. How do you determine which BTC or ETH you just sold? Was it the BTC / ETH you bought / mined in the first year? Or the second, third, fourth or fifth years? If you mined BTC / ETH I understand that you have to pay income tax at the price you were paid every year. The capital gains tax is what confuses me. There is no way to tell when you sell BTC or ETH, at which year it was acquired. It's just all pooled into one wallet.

Example:

Year 1:
Bought 1 BTC for $20,000

Year 2:
Bought 1 BTC for $30,000

Year 3:
Bought 1 BTC for $15,000

Year 4:
Bought 1 BTC for $10,000

Year 5:
Bought 1 BTC for $12,000

Balance after 5 years:
5 BTC

Year 6:
Sell 1 BTC for $25,000.

What is your capital gains tax? Which BTC is used to calculate the capital gains tax? Year 1, 2, 3, 4, 5?

There are several accounting methodologies to account for the "inventory", typically FIFO, LIFO or even average cost. the laws in your country will allow you to use either one or more of these. It is very common that they consider that you have sold the one you bought the cheapest, so that the benefit is the maximum and you pay more taxes sooner than later. So, this is something specific to your jurisdiction I am afraid, nothing that can be generalised.