What is Fair Market Value?
Fair Market Value (FMV) is the estimate of what an asset or property would sell for on the open market at any certain time. The fair market value of a crypto asset would be the price to sell crypto in a transaction between market participants at that date and time, which are determined by current quoted prices observable on spot exchange platforms that handle crypto trading.
How ZenLedger determines Fair Market Value:
Zenledger uses market data from price aggregators like CoinMarketCap and CoinGecko to pull fair market value data on any transaction you perform. 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 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 in your account.
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.
Let's say you trade 1 BTC for 5 XRP on 7-17-2018 14:31.
ZenLedger will first look at when that 1 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 1 BTC is determined (say 4-19-2015) we can calculate the FMV in US dollars.
Say the FMV at a specific time on 4-19-2015 is $350, and when you made the trade to XRP, the FMV for 1 BTC was $4,500, so when you are trading 1 BTC for 5 XRP, we will first record a gain of ($4,500 - $350) $4,150. We will also record $4,500 as the cost basis for your investment in 5 XRP on 7-17-2018.
If the fee for trading 1 BTC for 5 XRP is 1 ETH and on 7-17-2018 1 ETH is worth $1,600, then we subtract that amount from the $4,150 gains you made trading 1 BTC for 5 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 5 XRP for $4,500 (because that was their FMV 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.