NFTs might soon be taxed as collectibles under the U.S. tax code if the United States Internal Revenue Service (IRS) decides to proceed with its planned route. However, before anything is finalized, the IRS is seeking public opinion on how taxing NFTs could work. Therefore, individuals that hold or have interacted with non-fungible tokens are invited to share their two cents on the issue. All comments should reach the agency by June 19.
The notice was issued by the IRS on March 21, and is soliciting feedback on the best way to tax NFTs in a manner that will be favorable for individuals that interact with them. Given the growing popularity and use cases for NFTs, the IRS is bent on getting a slice of the burgeoning industry.
The agency introduced crypto taxation guidelines back in 2014, defining digital assets as property. However, it appears these guidelines are not applicable to NFTs. According to the IRS, collectibles under US tax law lack the perks of “capital-gains tax treatment as other capital assets.”
Remember: All taxpayers must answer the tax return question on digital assets regardless of whether they engaged in any such transactions. See more info from #IRS at: https://t.co/0tjkS0BBO1 pic.twitter.com/fmdG7ZdeAn
— IRSnews (@IRSnews) March 20, 2023
IRS Stand On NFT Taxation
The notice adds, “Until additional guidance is issued, the IRS intends to determine when an NFT is treated as a collectible by using a ‘look-through analysis. Under the look-through analysis, an NFT is treated as a collectible if the NFT’s associated right or asset falls under the definition of collectible in the tax code.”
That said, the US tax code stipulates that the sale of collectibles such as artwork is likely to attract the maximum capital gains tax rate of 28%. It’s a rate that could be applicable to NFTs if the proposed guidelines should pass.
Interestingly, the IRS has been contemplating how best to tax NFTs for a while. Last October, the agency introduced a draft bill that proposes that NFTs and crypto coins be reported in a broad “Digital Assets” section for tax purposes. Now it remains to be seen how the feedback they receive will impact their guidelines.
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*All investment/financial opinions expressed by NFT Plazas are from the personal research and experience of our site moderators and are intended as educational material only. Individuals are required to fully research any product prior to making any kind of investment.
Basil is an avid fan of blockchain technology and all its innovations, and he is passionate about sharing this narrative with his audience. He has spent over five years in the crypto space, specializing in research and creating Web3 content for various media outlets around the globe.
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