What is cost basis?
Cost basis is what you paid for an asset, including fees. When you sell, your taxable gain is the difference between what you received (proceeds) and what you paid (cost basis).
Simple in theory. Messy in practice with crypto.
Why exchanges get it wrong
The transfer problem
When you move crypto from Coinbase to MetaMask, Coinbase knows you sent it but MetaMask doesn't know what you paid. If you later move it to Kraken and sell, Kraken has no idea what your cost basis is. It might report $0 basis on a 1099, making it look like the entire sale is a gain.
This is called the "transfer basis gap." Unlike stocks (where ACATS transfers cost basis between brokers), crypto has no standard for passing this data.
The method problem
Even if you never transfer, exchanges default to FIFO. If you use HIFO on your own records (which the IRS allows through 2026), the exchange's cost basis won't match yours. Different method, different lots sold, different remaining pool.
Missing historical data
Some exchanges have shut down, changed ownership, or deleted old data. If you traded on an exchange in 2017 and it no longer exists, you need your own records of those purchases.
What "missing cost basis" means on your tax return
If you can't prove what you paid, the IRS may assume your cost basis is $0. That means your entire sale proceeds become taxable gain. On a $10,000 sale where you actually paid $8,000, that's the difference between a $2,000 gain and a $10,000 gain.
How to fix it
<strong class="text-[#e4e1ed]">Reconstruct from exchange records.</strong> Download transaction history from every exchange you've ever used. Even old ones. Many keep data available for years.
<strong class="text-[#e4e1ed]">Use blockchain data.</strong> For on-chain transactions, blockchain explorers can show what you received and when. Historical price APIs can approximate what it was worth.
<strong class="text-[#e4e1ed]">Import everything into one place.</strong> Crypto tax software consolidates data from all sources and matches buys to sells across platforms.
<strong class="text-[#e4e1ed]">Keep records going forward.</strong> Every purchase, every transfer, every swap. Your future self will thank you.
How CryptoTaxPilot helps
Upload CSVs from any exchange or paste your wallet addresses. CryptoTaxPilot merges everything into a single transaction history, identifies missing cost basis, and flags issues before you calculate. Captain Tax (our AI copilot) can explain each issue and suggest fixes.