Understand Cost Basis Tracking In 30 Seconds
When you sell or trade a digital asset, your gain or loss is the difference between:
-
Proceeds — the value you receive from the sale or trade
-
Cost basis — the value of the asset when you originally acquired it
If you hold multiple lots of the same asset at different prices, the cost basis used depends on:
-
Your Cost Basis Method (FIFO, LIFO, HIFO, etc.)
-
Your Tracking Method (Universal vs. By-Wallet)
Universal vs. By-Wallet Tracking
Universal (Global) Tracking — Pre-2025
Prior to the 2025 tax year, U.S. taxpayers effectively used a Universal (or global) cost basis tracking method.
Under Universal tracking, all holdings of the same asset were pooled together — regardless of which wallet or exchange held them.
If you sold an asset on one exchange, the system could pull cost basis from any wallet or exchange where that asset existed (based on your selected method such as FIFO or HIFO).
By-Wallet Tracking — Starting 2025
Beginning with the 2025 tax year, the IRS introduced By-Wallet cost basis tracking.
Under By-Wallet tracking, assets are no longer pooled globally. Instead, cost basis is tracked separately for each wallet or exchange.
If you sell from a specific wallet, the cost basis must come from that same wallet.
What Should You Do?
If You Have Never Filed Crypto Taxes Before
If you have not filed crypto taxes prior to 2025, setup is simple.
ZenLedger will default your account to By-Wallet tracking, consistent with IRS guidance. Since you were not previously using Universal tracking, no transition is required.
You can confirm your setting in the Tax Settings page.
If You Previously Filed Using ZenLedger
If you filed prior years using ZenLedger, we automatically handle the transition.
Your settings will show:
-
Tracking: By-Wallet
-
Mode: “By-Wallet after a specific date”
-
Transition Date: 01/01/2025
This ensures:
-
Universal tracking applies through 2024
-
By-Wallet tracking applies starting 2025
No action is required unless you wish to change the transition date.
If You Previously Filed Without Using ZenLedger
If you filed prior years using another platform or manually, you likely used Universal tracking.
New ZenLedger accounts default to fully By-Wallet. If you previously filed under Universal, leaving this unchanged could create inconsistencies — including potential duplication of cost basis in future years.
To ensure accurate continuity:
-
Go to Tax Settings
-
Select “By-Wallet after a specific date”
-
Confirm the transition date is 01/01/2025
This preserves Universal tracking for prior years and applies By-Wallet starting in 2025.
FAQ
What Is “Allocation” in Tax Settings?
Allocation is part of the transition from Universal to By-Wallet tracking.
When moving from pooled (Universal) assets to wallet-specific tracking, the system must divide your historical asset pool across your wallets and exchanges.
Allocation:
-
Occurs only when using “By-Wallet after a specific date”
-
Runs automatically during tax calculations
-
Includes a detailed report in the Tax Settings page
Can I Change My Transition Date?
Yes. You can modify the transition date in the Tax Settings page.
How Does FIFO, LIFO, or HIFO Affect This?
Your cost basis method (FIFO, LIFO, HIFO, etc.) applies under both Universal and By-Wallet tracking.
The method determines which lots are selected.
The tracking method determines where those lots can be selected from.
Both materially impact your gains and losses.
Why Is This Change Happening?
The shift to By-Wallet tracking is intended to improve reporting consistency and align digital asset tax reporting with IRS guidance beginning in 2025.
For a deeper explanation, see our detailed article on By-Wallet tracking and allocation.
Can I Remain on Universal Tracking?
ZenLedger allows you to select Universal tracking. However, this may not align with current IRS guidance. We strongly recommend consulting a tax professional before making that decision.
Disclaimer
Please note: This article is for informational purposes only and should not be considered tax advice. Always consult with a tax professional for advice tailored to your specific circumstances.