The Tax Bomb About to Fall on NFT Investors - AutoTrading Strategies

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The Tax Bomb About to Fall on NFT Investors

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According to IRS new rules regarding cryptocurrencies, the NFT investors in the US have to pay tax on their capital gains. 

The purchase and sale of NFTs have skyrocketed in the past few weeks. A new generation of investors is buying Non-Fungible Tokens by paying in crypto. The mania-driven boom has brought an additional $500 million in 2021 as per the data on nonfungible.com.

Cryptocurrency and NFTs are making each other popular. NFTs are based on the same blockchain as bitcoin and ethereum. They are easily transferable. However, one unit cannot be exchanged for another unit of the same asset class. This feature makes NFTs unique and scarce.

CNBC reported on Wednesday that  NFT buyers have a big tax surprise awaiting. Purchasing an asset using cryptocurrencies is an example of the “disposition of assets“, according to the recent guide of IRS on NFTs. The rules state,

“if you exchange virtual currency held as a capital asset for other property, including for goods or for another virtual currency, you will recognize a capital gain or loss.”

NFT Investors Will Have To Pay Tax

NFT investors make purchases using bitcoin or ether. These two and multiple other cryptocurrencies have more than doubled in price within the past few months. So let’s say you bought bitcoin when it was priced at $10,000. At the moment, its value is close to $55k. You decide to purchases an NFT with this bitcoin. In your mind, you are thinking, “I just bought an asset with my currency, I don’t have to pay tax on that”. Well, you have to.

As per the IRS rules, the BTC is your capital asset and not a currency. It appreciated in value over time. Your act of exchanging it for another asset counts as a sale. You earned a profit. Hence, you will get taxed.

NFT frenzied youth will take some time the tax repercussions on their investments.

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