It's essentially the latter but not directly related to the sale.
In the hypothetical example, the total 0.0005 BTC was drained from the original 1.0 BTC and paid to the exchange and/or miners at some time as a fee for the service of transferring the BTC from the exchange to a hardware wallet and, later, from the wallet back to the exchange (say 0.00025 each way). This is not part of the larger BTC sale except in that the BTC has to be on the exchange and not in the wallet to be sold. I wouldn't expect it to be deductible, but my question is how to account for it?
If 0.0005 BTC were used to buy a pizza, it would be considered a sale of that much BTC and there would be a gain or loss on it at the time of the pizza order. So is this similar, in that 0.0005 BTC was used pay for services at the time of the transfers and so would be considered a "sale" at that time?
That makes the most sense to me because all of the original 1.0 BTC would be accounted for and the larger sale would be for (1.0 - 0.0005) "shares".
Fortunately, I don't have to worry about a real life example until next year's taxes. It will be interesting to see how CoinTracker handles it.
Thanks for the reply!
