The IRS is seeking public comment on the taxation of NFTs
NFTs may soon be taxed as collectibles under the US tax code if United States Internal Revenue Service (IRS) decides to continue with his planned route. Before anything is finalized, however, the IRS is seeking public opinion on how taxing NFTs might work. Therefore, people who have or have interacted with non-fungible tokens are invited to share their two cents on the issue. All comments must reach the agency by 19 June.
The notice was issued by the IRS on March 21, and requests feedback on the best way to tax NFTs in a way that will benefit individuals who interact with them. Given the growing popularity and use cases for NFTs, tax authorities are keen to get a piece of the burgeoning industry.
The agency introduced crypto taxation guidelines back in 2014, defining digital assets as property. However, it appears that these guidelines do not apply to NFTs. According to the IRS, collectibles under US tax law lack the benefits of “taxation of capital gains like other assets.”
The IRS stands on NFT taxation
The message adds, “Until further guidance is issued, the IRS intends to determine when an NFT is treated as a collectible using a ‘look-through analysis’. 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 collector’s item in the Tax Act.”
That said, the US tax code stipulates that the sale of collectibles such as works of art is likely to attract the maximum capital gains tax rate of 28%. That’s a rate that could apply to NFTs if the proposed guidelines were to pass.
Interestingly, tax authorities have been considering how best to tax NFTs for some time. In October last year, the agency introduced a draft bill proposing that NFTs and crypto-coins be reported in a broad “Digital Assets” section for tax purposes. Now it remains to be seen how the feedback they get will affect their policies.
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*All investment/financial opinions expressed by NFT Plazas are from personal research and experience of our site moderators and are intended as educational material only. Individuals are required to research all products before making any type of investment.
Basil is an avid fan of blockchain technology and all its innovations, and he is passionate about sharing this narrative with his audience. He has spent over five years in the crypto space, specializing in research and creating Web3 content for various media around the world.
