The United States Internal Revenue Service (IRS) has announced plans to release guidance on taxing nonfungible tokens (NFTs) as collectibles under the U.S. tax code. In an open notice issued on March 21, the IRS asked for public feedback on how NFTs should be treated regarding taxation.
As per the IRS, collectibles in U.S. tax law are not subject to the same favorable capital gains tax treatment as other assets, potentially referring to how crypto assets are currently taxed in the country. For this reason, “Until additional guidance is issued, the IRS intends to determine when an NFT is treated as a collectible by using a ‘look-through analysis,'” the notice states. This means that an NFT will be treated as a collectible if its associated right or asset falls under the definition of collectible in the tax code.
Under the U.S. tax code, individuals selling collectibles such as coins or artwork are subject to a maximum capital gains tax rate of 28%. The Internal Revenue Service (IRS) recently proposed guidance extending this standard to Nonfungible Tokens (NFTs) certifying ownership of a coin, piece of art, or other collectibles.
The deadline for comments to be submitted on the proposed IRS guidance is June 19; however, any changes resulting from it will not apply to taxpayers needing to file their 2022 returns before the April 18 deadline. When filing applicable forms, individuals must check a box in the affirmative if they have received, earned, transferred, or sold crypto assets and then report these transactions as either capital gains or income, depending on their status.
In October, the IRS proposed a draft bill requiring U.S. taxpayers to report their holdings of nonfungible tokens (NFTs) and cryptocurrencies in a new “Digital Assets” section of their tax returns. Generally, if the taxpayer holds all digital assets for an entire year or transfers them between wallets they control, these holdings do not need to be reported.
