The Internal Revenue Service of the United States has stated that it intends to issue guidance regarding the tax treatment of nonfungible tokens, or NFTs, as collectibles.
The IRS asked for public input on how NFTs could be taxed as collectibles in a notice dated March 21. The government body asserts that collectibles “do not have as advantageous capital-gains tax treatment as other capital assets” under U.S. tax law, presumably referring to the manner in which crypto assets are currently taxed in the nation.
The notice stated, “Until additional guidance is issued, the IRS intends to determine by using a ‘look-through analysis’ when an NFT is treated as a collectible.” An NFT is considered a collectible under the look-through analysis if its associated right or asset meets the tax code’s definition of a collectible.
The sale of collectibles like artwork or coins is subject to a maximum capital gains tax rate of 28% under the tax code of the United States. An NFT certifying ownership of a coin, artwork, or other collectible could be subject to the same standards as the proposed IRS guidance.
Taxpayers in the United States who are required to submit their 2022 returns prior to the April 18 deadline probably won’t be affected by the IRS’s request for comments to be submitted by June 19. To correctly report their taxes and, depending on the status of the filer, report transactions as capital gains or income, forms require anyone receiving, earning, transferring, or selling cryptocurrency to check a box that says “yes.”
In October, the IRS presented a draft bill that called for cryptocurrencies and non-fungible cryptocurrencies to be reported for tax purposes under the broad heading “Digital Assets.” In most cases, a U.S. taxpayer is not required to report their digital asset holdings if they hold them for an entire year or transfer them between wallets they control.