Missing Cost Basis Warnings (previously called negative balance warnings)
Missing Cost Basis Warnings happen when you haven't shown CryptoTrader.Tax how you originally purchased or otherwise acquired a certain cryptocurrency.
When this is the case, there is no way for CryptoTrader.Tax to know what your cost basis in that cryptocurrency is.
These warnings are almost always caused by missing data. It's likely that you haven't imported all of your necessary transaction history needed for calculating your taxes.
What is Cost Basis?
Costs basis represents the original value of an asset for tax purposes. It is used to determine your capital gains/losses incurred whenever you dispose of your crypto (trade or sell).
Put another way, cost basis typically represents how much money you put into purchasing your crypto (i.e. how much it cost you).
If you bought 1 Litecoin for $250, your cost basis is $250 per Litecoin.
If you later trade this Litecoin when it is worth $300, you subtract your cost basis from the $300 to arrive at your $50 capital gain from the trade. This is how crypto tax calculations are done at a high level. More info here.
Why Do Missing Cost Basis Warnings Happen?
CryptoTrader.Tax works by importing all of your buys, sells, trades, and crypto related transactions across all of your cryptocurrency platforms.
The application normalizes all of this data and sorts it chronologically.
When CryptoTrader.Tax detects that you are selling or trading a cryptocurrency that it does not have record of you ever acquiring, it flags the transaction as a Missing Cost Basis (as you are missing your cost basis for this sale/trade of the particular cryptocurrency).
Consider the following transaction history:
- 1/1/2020 - User purchases 0.5 BTC on Coinbase for $10,000
- 3/1/2020 - User transfers his 0.5 BTC to Gemini where he sells it for $20,000
1. Only importing Gemini
Let's say our user only imports his Gemini trading history into CryptoTrader.Tax and ignores his other data.
In this case, CryptoTrader.Tax will only have data on a 0.5 BTC deposit into the Gemini account along with a sell transaction of BTC for USD at $20,000.
This would trigger a Missing Cost Basis Warning as the user has not shown CryptoTrader.Tax how he originally acquired that 0.5 BTC.
It looks like this 0.5 BTC just magically appeared in the users Gemini wallet. Without the original purchase transaction data from Coinbase, the user's true $10,000 cost basis in his 0.5 BTC will be missing.
2. Importing all data
If the user imports all of his data from both Coinbase and Gemini, CryptoTrader.Tax will be able to see that the user originally purchased this 0.5 BTC for $10,000 prior to selling it on Gemini.
When the user then sells this BTC on Gemini, CryptoTrader.Tax will be able to accurately calculate his correct capital gain using the cost basis applied from the original Coinbase purchase: $20,000 - $10,000 = $10,000.
The below image showcases a clear example of how missing cost basis warnings work.
In the image, the user has imported history from two platforms, Coinbase and Bitrue.
You can see that on 2/4/2021, a missing cost basis warning is being triggered from a trade of ETH for XRP.
You can also clearly see that before this date, there is no record of the user ever acquiring ETH. There is no record of the original ETH acquisition.
How did the user originally acquire this 0.02252550 ETH that they are trading for 80 XRP? Was it gifted to them from a friend? Clearly there is some missing data here which is leading to this missing cost basis warning.
Other Causes of Missing Cost Basis Data
Common causes of Missing Cost Basis Warnings include any scenario in which you haven't shown CryptoTrader.Tax how you originally acquired your crypto.
This can be through:
- staking rewards
- interest income
- mining rewards
- referral commissions
- gifts received from friends
- missing trade history
It's important to properly account for your incoming crypto transactions to avoid Missing Cost Basis Warnings.
Can You Run Your Tax Report With Missing Cost Basis?
CryptoTrader.Tax will still run your tax report in spite of Missing Cost Basis Warnings. In many circumstances, Missing Cost Basis Warnings will not have any significant effect on your gains and losses. CryptoTrader.Tax treats this missing data with a zero cost basis—the most conservative approach.
Learn how your Missing Cost Basis Warnings will effect your tax report in this article here.
How Do I Fix A Missing Cost Basis Warning?
As mentioned above, your Missing Cost Basis Warning is likely resulting from missing data. To fix your warning, you simply need to import or classify whatever data is missing.
Below are the most common causes for missing data that we see.
Common Causes of Missing Cost Basis Warnings:
- You didn't import the historical data from ALL of the exchanges or platforms that you bought, traded, earned, or transacted crypto on
- You didn't include your data from ALL of the years that you have transacted with crypto
- You have imported duplicate data
- You didn't include the crypto you received from mining, staking, interest earned, or other forms of income (Learn how here)
- You didn't include crypto a friend sent you as a gift in Step 2 as an incoming transaction
- You traded on both Coinbase and Coinbase Pro but did not upload both exchanges
- You accidentally imported the same CSV file for an exchange twice resulting in duplicate trades that are triggering warnings
- You purchased or sold crypto directly from your self-custodied wallet provider but did not import those buys/sells (Learn more here)
- You imported data from Binance.US which has known data limitations. Learn more here.
Fix your Missing Cost Basis Warnings by importing your missing data.
Still stuck? Think there is a different problem? Please reach out to our team here on Intercom. We are happy to help!