Lets say I bought “1” crypto token a year ago for $5. That “1” crypto token went up to to $10 this year. My eth gas fee was $10 to trade the coin for USDC tokens on uniswap. Would the $10 eth gas fee wipe out the capital gains taxes owed for this trade?
In simple terms, the answer is YES. If you paid $5 for the 1 token then your cost base for the token is $5 (assuming you have never purchased or sold that type of token before). If you then sold that 1 token for USDC worth $10, in the absence of gas fees you would have a $5 capital gain ($10 sale proceeds less $5 cost base). However, the $10 ETH gas fee on the sale is a transaction cost that Koinly adds to the cost base of your 1 token in calculating your capital gains. In this case you have a $5 capital loss ($10 sale proceeds less $15 cost base). You can use this capital loss to offset other capital gains for tax purposes.
You should take note that you have also disposed of $10 of ETH to pay the gas fee so Koinly would also calculate a capital gain or loss on this ETH disposal and include this in your capital gain/loss calculation for the transaction.
Koinly has posted a blog article titled “How Are Ethereum (ETH) Gas Fees Taxed”. https://koinly.io/blog/what-are-gas-fees-and-how-are-they-taxed/ .
Below is an excerpt from the article with an example of the impact of ETH gas fees on a sale of crypto:
This ones pretty straightforward because these fees are all associated with a transaction - whether that’s a purchase, sale or trade. Capital Gains Tax rules allow for you to add transaction fees to the cost basis of an asset. So whenever you buy, sell or trade crypto on the Ethereum blockchain and pay a gas fee - you can add this to your cost base. This will reduce the amount of tax you owe on a given asset by giving a more realistic picture of what it actually cost you.
You buy 1 ETH for $3,000. The gas fee is $100. Your current cost basis is $3,000 + $100 = $3100.
You later sell your 1 ETH for $4,000. The gas fee is another $100. Add this to your cost basis so $3,200. Now calculate your capital gain.
$4,000 - $3,200 = $800. You’d pay tax on $800.
Hope this helps.