I've been seeing some confusion popping up about how transaction fees are handled and how they impact your gains and losses. Contributing further to the confusion, fee logic has actually changed in 2025 which has been largely overlooked due to the more significant changes that most are focused on (e.g. 1099-DA, per wallet cost tracking etc).
All these changes are discussed in the IRS Final Regulations: Gross Proceeds and Basis Reporting by Brokers and Determination of Amount Realized and Basis for Digital Asset Transactions (what a mouth-full)
Let's dive in.
Previously transaction fees were typically included in the cost basis of the asset you're receiving. In other words, if I swap BTC for ETH and pay a transaction fee for this swap, I include the fair value of the fee into the cost basis of the received ETH. This means the tax benefit of this fee isn't felt until I sell the ETH.
What's changed?
In 2025, the fee now reduces the proceeds side of the transaction. Meaning the tax benefit of the fee is felt when the fee is paid (most of the time, will discuss exceptions shortly). So if you swap 1 BTC for 25 ETH and pay a transaction fee, rather than taking the FV of the fee and adding it to the cost basis of the ETH, you actually take the FV of the fee and reduce the proceeds realized on the 1 BTC disposal, making the the tax benefit realized immediately. Surprisingly, this treatment actually benefits taxpayers which is great!
Additionally, if a fee is paid in the same asset type being received is considered withheld, the tax lot pulled for the fee disposal is to be pulled from the same pool of assets being received (not your existing pools). So if you pay a 1 ETH withheld transaction fee in the scenario above, it uses 1 of the 25 ETH received as opposed to one of your existing ETH, which results in a $0 gain making the fee calc easy.
Let's review an example:
Facts:
- You have 1 BTC with a cost basis of $1,000.
- You hold 1 ETH in your account with a cost basis of $200
- You swap the 1 BTC for 25 ETH when BTC is worth $25,000 and ETH is worth $1,000
- This swap includes a 1 ETH transaction fee (ETH still worth $1,000)
OLD gain/loss calc:
- 1 BTC disposal with $24,000 gain ($25,000 proceeds – $1,000 cost basis)
- 1 ETH disposal with $800 gain ($1,000 proceeds – $200 cost basis)
- 25 ETH received have a cost basis of $26,000 total ($25,000 from BTC + $1,000 in fee paid)
NEW gain/loss calc (2025 and onward):
- 1 BTC disposal with $23,000 gain ($24,000 proceeds – $1,000 cost basis) (the FV of the fee reduces the proceeds of the BTC disposal)
- 1 ETH disposal with no gain (deemed to be withheld from the received ETH)
- 24 net ETH received have a cost basis of $24,000 total ($24,000 from BTC), with the old 1 ETH still retaining its initial $200 cost basis
You can review the specific examples within the Federal Register using this direct link to the examples section: Fee Examples
What are the exceptions?
If you pay cash for crypto and pay fee in cash, then this will still get added to your cost basis of the received asset. It's as if the cash you paid was simply higher. In other words, if you buy 1 ETH for $2,500, and pay a $200 fee, then the total cash you spent is $2,700 so the cost basis on your ETH is $2,700.
As we approach tax season, its important to ensure you're aware of the new regs and how they impact your taxes. Hopefully most softwares should be doing this for you, but always worth double checking to ensure they've made the changes (especially since this will generally help taxpayers reduce taxable gains this year).
Wishing everyone a Merry Christmas, Happy Holidays, and a Happy New Year!
– JustinCPA, Product Lead @ Summ (formerly Crypto Tax Calculator)
