The U.S. Internal Revenue Service (IRS) has provided NFT investors with greater clarity regarding how the assets are expected to be taxed.
Same Tax Law For All Digital Assets
According to the IRS’s tax year 2022 guide, all “digital assets,” such as stablecoins, non-fungible tokens (NFTs), and cryptocurrencies, would be subject to the same tax laws. The 2021 guide, which only addressed the regulations affecting cryptocurrencies and stablecoins, used the more restricted phrase “virtual currencies.”
Taxpayers who “disposed of any digital asset in 2022” through a sale, exchange, gift, or transfer will now need to declare and pay capital gains tax on the transaction. Additionally, anyone who sold any digital assets they had on hand for sale or received NFTs in exchange for services will eventually need to report this income.
The IRS also appears to have used careful wording to permit future taxation of any further classes of digital assets. According to the organization, a particular asset will be considered as a digital asset for federal income tax purposes if it has the characteristics of a digital asset.
NFTs Aren’t “Collectibles”
Notably, the IRS decided not to classify NFTs as “collectibles,” which are assets taxed at a different rate than stocks or bonds. Assets like collectible art, antiques, or stones fall under this category.
In contrast to assets like stocks, bonds, or cryptocurrency, which are taxed at 0%, 15%, or 20% depending on the seller’s income, collectibles are taxed at a rate of 28%. As more nations define how digital assets will be taxed, tax loopholes for cryptocurrency investors now appear to be closing, at least in many parts of the world.
In October 2022, Portugal, which was long regarded as a refuge for cryptocurrency investors, enacted a 28% capital gains tax on cryptocurrency gains realized during a calendar year. Not only tax authorities may be preparing to reduce the gains of NFTS investors.
Apple agreed to allow in-app NFT sales on its platform in September, much to the chagrin of the NFT community, with the condition that these transactions would be subject to its standard 30% commission fee.
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