The IRS wants to start taxing NFTs as collectibles
The IRS has announced that it will tax NFT purchases in the future.
NFTs have been a controversial technology that some have heralded as the next big thing in terms of art and entertainment, while others have chalked it up as a passing fad. Regardless, people have continued to buy and sell the non-fungible tokens, with some NFTs selling for absurd amounts of cash. It’s officially caught the attention of the United States Internal Revenue Service (IRS), and the organization has announced that it plans to begin taxing NFT purchases.
The IRS posted a news release to its website to share its plans to start taxing NFTs. The organization wants to treat NFTs as collectibles, similar to art. The company directly compares them to gems, stating that since gems are considered collectibles that can be taxed, an NFT representing a gem can also be considered a taxable collectible.
The decision is not final, as the IRS is asking for feedback on the decision to potentially tax NFTs. These comments are due by June 19, 2023, so we shouldn’t expect to see IRS’ move to tax NFT go into effect until at least after then.
Until additional guidance is issued, the IRS intends to determine when an NFT is treated as a collectible by 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 collectible in the tax code. For example, a gem is a collectible under section 408(m); therefore, an NFT that certifies ownership of a gem is a collectible.
If the IRS does indeed start taxing NFTs, they could tax them by up to 28 percent, which is how much the group usually taxes collectibles held for more than a year. It will be interesting to see how this impacts the NFT and crypto world should it go into practice.
Donovan Erskine posted a new article, The IRS wants to start taxing NFTs as collectibles