The Fair Market Value is the estimate of what an asset or property would sell for on the open market
The fair market value of a crypto asset would be the price to sell crypto in a transaction between market participants at the date and time, which are determined by current quoted prices observable on a spot exchanges platform that handle crypto trading.
First, we use the market price using data available on your transaction. For example, if you bought 1 ETH for 1500 USD then Zenledger will set 1500 USD as (FMV) for that specific transaction.
We can calculate the fair market value (FMV) at any given timestamp for any given cryptocurrency. We integrate with multiple third-party APIs that specialize in calculating the fair market value for different cryptocurrencies. So once the fair market value is determined, the problem is boiled down to basic arithmetic that our algorithm calculates.
If you believe the market price of some coins is higher or lower than what you paid for them, you can also change ZenLedger’s prices by editing the transaction.
This is mainly used for Buys and sells since the actual amount received or spent in fiat might differ from the market value at the time.
In the case of editing be fair and reasonable with regards to how you calculate prices, be consistent, and be prepared to defend your approach as fair if challenged.
You trade one BTC for five XRP on 7-17-2015 14:31
ZenLedger will first look at when that one BTC was bought, or perhaps it was bought through a series of acquisitions of Satoshis. In any case, once the date of the purchase of the one BTC is determined (say 4-19-2012) we can calculate the fair market value in US dollars.
Let's say the fair market value at a specific time on 4-19-2012 is $350, and when you made the trade, the fair market value for one BTC was $4,500, so when you are trading one BTC for five XRP, we will first record a gain of ($4,500 - $350) $4,150 and record $4,500 again as the cost basis for your investment in five XRP on 7-17-2015.
If the fee for trading one BTC for five XRP is one ETH and on 7-17-2015 one ETH is worth $1,600, then we subtract that amount from the $4,150 gains you made trading one BTC for five XRP.
Your net gains from this trade will equal the sales proceeds minus the cost basis: $4,500 - (Cost Basis ($350) + Fees ($1600)) = $2,550.
You have also acquired five XRP for $4,500 (because that was their fair market value when you acquired them) and depending on the market and when you sell or trade them you will make another gain or loss depending on their fair market values.
This information is for informational purposes only and not for the purpose of providing financial, legal, investment, accounting, or tax advice. You should contact your CPA or other qualified tax professional to obtain advice regarding your particular issue or problem.