Digital artist FEWOCiOUS auctions five NFT works of art, along with five physical paintings and drawings at Christie’s on June 28, 2021 in New York.
Noam Galai | Getty Images Entertainment | Getty Images
The IRS said it plans to tax some non-fungible tokens, or NFTs, as collectibles akin to art or gems — an approach that would tax profits for wealthy owners at a higher rate relative to assets such as stocks, real estate and cryptocurrency.
The federal government levies taxes on collectibles held for more than a year at a top rate of 28%. It generally levies a top 20% rate on other investments.
In a notice on Monday, the IRS said it intends to issue guidance regarding the treatment of certain NFTs as collectibles.
NFTs are essentially one-of-a-kind digital assets, which can extend beyond digital art to include things such as such as tweets and GIFs. They sometimes also give owners a right with respect to a non-digital asset, like a right to attend a ticketed event or certify ownership of a physical item.
The IRS requested comments from the public, which are due by June 19.
“The IRS hasn’t said anything about NFTs until now,” said Shehan Chandrasekera, an accountant and head of tax strategy at CoinTracker. “This is kind of like half guidance because it’s not finalized yet.”
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How the IRS plans to tax NFTs
NFT enthusiasm swelled in recent years along with the popularity of cryptocurrencies such as bitcoin.
However, that energy has since cratered. NFT volume fell 77%, to $1.7 billion, in the third quarter of 2022 versus $7.4 billion in the second quarter, according to NonFungible.com. There was also a broad market pullback among assets such as stocks and bonds last year.
The IRS plans to use a “look-through analysis” to determine whether an NFT is a…
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