Loans/Borrowing in Cointracker

When transactions from metamask imported, how should loans (say from MKR CDPs or Compound/Aave borrowing against deposited collateral) be marked so that it is clear the receving quantity is a loan and not something to trigger taxable gains? Is it neccesary to ‘mark as transaction’, or is it sufficient to just show a receipt with no corresponding send to get the tokens marked correctly for their cost basis, but not treated as income?

Hi @karma900,

For Maker, you should automatically already see that transaction labeled as a Maker Vault.

For Aave and Compound we are working on enabling the same labeling automatically so that they will just show up for you (without any user action).

I’m OK to adjust this manually (Aave and compound are other major sources of borrowing, but surely are not the only sources of Defi borrowing I have to account for for this tax year). I’m mainly trying to get help using the software as it exists today to account for these types of loan transactions. (edit: Unless Cream, UMA, etc are also imminently on your add list, but I’m guessing that’s too far out, especially if there are significant quarterly gains amidst other transactions due this tax year to account for.)

Possible?

These are a little further out. You can track progress here:

For now, here is the way to manually adjust transactions to account for the borrowing flow (please keep in mind this is a grey area for taxes so this just our best approximation of how it makes sense to enter DeFi crypto loans):

  1. Deposit collateral (e.g. DAI) — not taxable, mark as transfer
  2. Receive loan (e.g. ETH) — not taxable, just leave as a receive (cost basis = fair market value, zero income)
  3. Trade ETH for BTC — taxable, regular crypto-to-crypto trade
  4. Trade BTC for ETH — taxable, regular crypto-to-crypto trade
  5. Repay ETH loan — not taxable, mark as transfer
  6. Unlock DAI collateral — not taxable, mark as transfer

Thank you, that is helpful. It was that step 2 that I wasn’t clear on, I had been ‘marking as transfer’ since I was worried simply ‘Receive’ transactions might have been triggering taxable events in some fashion, but that was of course creating other problems.

I’ve got some re-editing to do, but now I can progress further through the year!

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Chandan,

What you listed for 1-6 makes sense to me, however for step 2 my creation of DAI for $400 created a cost basis from my ETH collateral of roughly 1k. See below.

  1. Deposit collateral (e.g. **ETH** ) — not taxable, mark as transfer ($1,000)
  2. Receive loan (e.g. **DAI** ) — not taxable, just leave as a receive (cost basis = fair market value, zero income). ($400) Cost Basis = $1,000

That means that on my very next transaction when depositing that DAI into compound for $400 I created a loss of about $700. This should not be the case since my cost basis on the $400 should have not have occurred. Should I adjust the transaction? I don’t see how to do that correctly.

@bradjames,

Do you mind sharing the specific transaction series you are working with directly here?

Chandan, thank you for the quick response. I have provided the details through the method you provided.

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Chandan, I have sent two messages through your help center and I have not received a response on either. What should I do?

Hi @bradjames,

No further action required at this time. We have gotten a little backlogged on support due to high volume but we have received your messages and we will get back to you. Thanks for your patience!

Chandan, no problem that is understandable. This is not an urgent issue.

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