Introduction

How to calculate the cost basis of coins coming from a split?

Example calculation - bitcoin split on 1 August 2017

On 1 August 2017, 1 bitcoin split to 1 BTC and 1 BCH. On that date, the closing price of BTC was $256.17 and the closing price of BCH was $16.37.

For the purpose of this example, we assume that the cost basis of the presplit bitcoin was $259.16. An owner having a different presplit cost basis should use his own value instead.

To split the cost basis fairly, we use the ratios in which the coin split. This gives the cost basis of a postsplit BTC equal to $259.16 * $256.17 / ($256.17 + $16.37) = $243.59 and the cost basis of a postsplit BCH equal to $259.16 * $16.37 / ($256.17 + $16.37) = $15.57.

Conclusion

Our calculation describes the fair way how to split the cost basis after a coin split.

While having a practical purpose, our calculation also has a theoretical importance, demonstrating that the coins coming from a split have a definite fair cost basis, i.e. that they are not "free money" as some commentators mistakenly believe.