Cost Basis is for when Crypto is being treated as stock, (investment)
The IRS does not view Crypto as currency.
You will report this "Interest" as income and give it the dollar amount of the value of the crypto at the time you gained control of it.
When the Crypto is paid out to you and you have control (when it it transferred to your wallet) you should report it as income.
The amount of income you report will be that value of that Crypto when you get possession/control.
NOW that value is your basis if you trade or sell it in the future. When you do, that gain or loss with be entered as investment.
Enter the income as an "Crypto Interest Incentive". It will be listed on line 8 of your 1040.
When you sell or trade it, you may need to recognize a gain or loss on the transaction.
If you use it to make a personal purchase, that transaction won't be reported UNLESS the value of this virtual currency is up when you use it, then you are taxed on the gain. When you USE IT (for a personal purchase), you may need to report a gain, but can't claim a loss.
Go to the Wages & Income section
Scroll down to the VERY LAST option "Less Common Income" and click Show more
On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click START
Now scroll down to the VERY LAST option "Other reportable income" and click Start
Select YES on the "Any Other Taxable Income?" screen
Type "Crypto Interest Incentive" (or whatever you think will make sense to the IRS and always use this same description going forward) and the amount (the dollar value of the crypto)
If the value is 5, you report 5 income
Now your "basis" is $5, if it is traded at $7, you have a $2 gain, if you sell at $3, you have a $2 loss.
If you buy a $2.50 coffee with it and it's still worth $5, (so you only use half) nothing to report.
If you buy a $2.50 coffee with it and it's worth $10, you have a 2.50 gain (because it doubled in value)
If you buy a $2.50 coffee with it and it's only worth $2,50, you have nothing to report. You can't claim a loss when using it for a purchase. (You COULD have sold it for 2.50, claimed a 2.50 loss, THEN bought your coffee)
You will need to keep track of this basis for each unit of crypto you hold.
The IRS says First In First Out, so when you use it, you use the oldest basis for that unit of crypto
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