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October 25, 2021 | Good News for Crypto – Gas Fees Have Tax Benefits

Updated: Jun 23, 2023

If you’re anything like me, you’re feeling the FOMO (fear of missing out) when you hear that someone just turned $40 into $20,000 investing in some obscure cryptocurrency. Although we always advise all of our clients to make sure they do their due diligence, sometimes we abandon sensible fundamentals in order to seek out remunerative gains on a speculative meme-coin. I’m guilty of it. However, by doing so, I’ve learned some lessons that will be helpful to others. Gas prices are on the rise, and I don’t just mean for your car.

What is Gas?

Gas is the transaction fee, otherwise known as a miner’s fee, which you have to pay to the Ethereum network to execute your transaction. As transactions increase on the Ethereum network, gas prices go up; however, they are not necessarily tied to the market price of Ethereum. This is completely separate from a Coinbase fee (or any other cryptocurrency exchange platform fee). There is a silver lining; gas prices have tax benefits.

Gas Fees of Dispositions

Gas fees on sales are deducted from proceeds received. For instance, if Daryl sells 1 ether (ETH) for $4,000 and spends $38 for gas, his total proceeds on the transaction would be $3,962 ($4,000 – $38).

Gas Fees on Transfers

Gas fees on transfers can be added back to the basis of the token. Suppose Daryl purchases 1 ETH at $4,000 on Coinbase. In order to transfer this token to his Coinbase Wallet, he has to incur a $32 gas fee. Once the transfer is complete, the cost basis of his 1 ETH on Coinbase Wallet will be $4,032 ($4,000 + $32). When you up the cost basis with the gas fees incurred, the eventual capital gain resulting from selling that coin will decrease.

Failed Gas Fees

Losing ether to failed transactions is not an unusual occurrence in the Ethereum blockchain; it’s not fun and I’ve personally learned this the hard way. Transactions can fail if you don’t enter sufficient gas limit to pay the transaction fee and/or when a contract rejects the transaction. Even though the transaction will be reverted, the ether used during the process will not be refunded. The Ethereum lost on failed transactions could result in a capital loss which could offset your capital gains.

In order to get these tax benefits, you should keep detailed records of all of your cryptocurrency transactions. For further information regarding the tax implications on the sale of virtual currency, please contact one of the tax professionals at Bormel, Grice & Huyett, P.A. 410-792-7259.


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