U.S. IRS explores NFT taxation; seeks public discourse

On Mar 22, 2023

The United States IRS recently unveiled plans to release guidance on taxation of NFTs.
NFTs could see capital gains taxes of up to 28% under the proposed guidance.

The United States Internal Revenue Service (IRS) has announced plans to release guidance on the taxation of Non-Fungible Tokens [NFTs] as collectibles under the U.S. tax code. In a notice released on 21 March, the IRS, along with the United States Treasury Department, called for feedback from the U.S. public on how NFTs should be taxed as collectibles.

The IRS stated that as of now, NFTs do not receive as advantageous capital-gains tax treatment as other capital assets.

NFTs may see capital gains tax of up to 28%

According to the notice, to determine whether an NFT should be treated as a collectible, the tax agency intends to use a look-through analysis.

The notice read:

“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.”

Currently, selling collectibles such as coins or artwork is subject to a maximum capital gains tax rate of 28%. The proposed IRS guidance could apply the same standard to an NFT certifying ownership of a collectible.

The IRS has stated that the last date for comments is 19 June. Thus, taxpayers needing to file their 2022 returns before the 18 April deadline will likely remain unaffected. In the meantime, the tax authority says it will treat any NFTs like their underlying asset.

In October 2022, the IRS expanded its instructions for those filing tax forms by introducing a draft bill proposing that NFTs and cryptocurrencies should be reported in a broad “Digital Assets” section for tax purposes. Thus, U.S. taxpayers holding digital assets for an entire year do not need to report their holdings. This is true even if they transfer their holdings between wallets.

This article originally appeared here.