XRP Cost Basis Methods Explained

FIFO vs Specific Identification: Understanding which cost basis method is right for your XRP portfolio and tax situation.

1

What is Cost Basis?

Cost basis is the original value of your XRP for tax purposes—essentially what you paid for it. When you sell, your taxable gain (or loss) is calculated as:

Taxable Gain = Sale Price - Cost Basis

The challenge with crypto is that you often buy the same asset at different prices over time. When you sell, which purchase price do you use? That's where cost basis methods come in.

Why it matters: The method you choose can significantly affect how much tax you owe. Different methods can result in different reported gains—all perfectly legal.

2

FIFO Method (First In, First Out)

FIFO assumes you sell your oldest XRP first. This is the default method used by most tax software and is the simplest to implement.

Example: FIFO in Action

Suppose you made these purchases:

DateAmountPrice/XRPTotal Cost
Jan 20241,000 XRP$0.50$500
Jun 2024500 XRP$0.60$300
Nov 2024500 XRP$1.50$750

Now you sell 800 XRP at $2.50 each ($2,000 total):

With FIFO, you sell your oldest XRP first:

  • • 800 XRP from Jan 2024 lot @ $0.50 = $400 cost basis

Sale Proceeds

$2,000

Cost Basis (FIFO)

$400

Taxable Gain

$1,600

✓ Pros

  • • Simple and straightforward
  • • Default method accepted everywhere
  • • No record-keeping of specific lots
  • • May qualify for long-term gains faster

✗ Cons

  • • Less flexibility in tax planning
  • • May result in higher taxes in bull markets
  • • Cannot optimize for specific tax situations
3

Specific Identification Method

Specific Identification lets you choose exactly which XRP you're selling. This gives you control over your tax liability but requires detailed record-keeping.

Example: Specific ID in Action

Same purchases as before, selling 800 XRP at $2.50:

With Specific ID, you choose which lots to sell:

Option A: Minimize Taxes Now

Sell 500 XRP from Nov 2024 (@$1.50) + 300 from Jun 2024 (@$0.60)

Cost Basis = $750 + $180 = $930

Taxable Gain = $2,000 - $930 = $1,070

Option B: Use FIFO equivalent

Sell 800 XRP from Jan 2024 (@$0.50)

Cost Basis = $400

Taxable Gain = $2,000 - $400 = $1,600

Tax Savings with Specific ID: $530 less taxable gain!

At a 24% tax bracket, that's ~$127 saved on this single sale.

✓ Pros

  • • Maximum tax optimization flexibility
  • • Can minimize gains or maximize losses
  • • Strategic for tax-loss harvesting
  • • Control over short vs long-term gains

✗ Cons

  • • Requires detailed documentation
  • • Must identify lots BEFORE selling
  • • More complex record-keeping
  • • Not all exchanges support it
4

Which Method is Right for You?

🎯 Choose FIFO if:

  • •You want simplicity over optimization
  • •You don't want to track individual lots
  • •You're holding long-term anyway
  • •Your tax situation is straightforward

⚡ Choose Specific ID if:

  • •You actively trade and want tax efficiency
  • •You bought at many different price points
  • •You want to tax-loss harvest strategically
  • •You have high income and want to minimize taxes

Important Tax Disclaimer

This guide is for educational purposes only and does not constitute tax advice. Cryptocurrency tax laws vary by jurisdiction and are subject to change.

  • • Consult a qualified tax professional before making decisions
  • • Keep detailed records of all your transactions
  • • Tax rules for crypto are still evolving
  • • You must choose and consistently apply one method

Calculate Your Cost Basis

XRP Dashboard automatically tracks your cost basis using your preferred method. Import your transactions and see your tax-ready P&L.

Calculate Your Cost Basis