To determine the fair market value of cryptocurrency received in a peer-to-peer transaction or another type of transaction that did not involve a cryptocurrency exchange, you should follow these guidelines:
- Date and Time of Transaction: The fair market value of the cryptocurrency is determined as of the date and time the transaction is recorded on the distributed ledger. If the transaction is not recorded on the ledger, you should use the date and time it would have been recorded if it had been an on-chain transaction.
- Use of Cryptocurrency or Blockchain Explorer: The IRS will accept the value as determined by a cryptocurrency or blockchain explorer that analyzes worldwide indices of a cryptocurrency and calculates the value of the cryptocurrency at an exact date and time. This means you can use tools or websites that provide historical data on cryptocurrency prices to find the value at the specific date and time of your transaction.
- Alternative Valuation Method: If you do not use a value from a cryptocurrency or blockchain explorer, you must establish that the value you used is an accurate representation of the cryptocurrency’s fair market value. This could involve using other reliable sources or methods to determine the value, but you must be able to substantiate that the value is accurate.
By following these steps, you can accurately determine the fair market value of the cryptocurrency you received in a peer-to-peer transaction or other non-exchange transaction for tax reporting purposes.
Sources:
Notice 2014-21
Rev. Rul. 2019-24
Publication 544 (2023)
