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IRS Considering Taxing NFTs as Collectibles

1 min
Updated by Geraint Price
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In Brief

  • IRS seeks feedback for NFT taxation till June 19.
  • The tax expert believes that the notice provides a lot of clarity in an area that had no clear guidelines before.
  • If NFTs are classified as collectibles, it could result in a 28% long term capital gains tax.
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The U.S. Internal Revenue Service (IRS) has announced it is looking to take feedback on the taxation of non-fungible tokens (NFTs).

The Treasury Department and the IRS issued a notice about the tax treatment of Non-Fungible Tokens as collectibles. It seeks feedback on whether to tax NFTs under Section 408(m) of the Internal Revenue Code.

The IRS is open for comments till June 19.

Look-Through Analysis for NFT Taxes

The IRS wants to examine if a particular NFT falls under the collectibles category through a “look-through analysis.” That means it should pass the definition of collectible in the tax code.

It explains, “A gem is a collectible under section 408(m); therefore, an NFT that certifies ownership of a gem is a collectible.”

28% Long-Term Capital Gain Tax Could be Imposed

Shehan Chandrasekera, the head of tax strategy at CoinTracker, told BeInCrypto, “This notice provided a lot of clarity to an area we had not seen any type of guidance before. The guidance is not final but their analysis helps us think more clearly about NFT taxes.”

However, he believes this is not necessarily great news for someone trading NFTs classified as collectibles. Shehan explains, “If an asset is taxed as a collectible, you could be subject to a higher long-term cap gain tax rate (28%) than the regular 20% long-term rate non-collectible assets are subject to.”

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Harsh Notariya
Harsh Notariya is a journalist at BeInCrypto, who writes about various topics, including decentralized physical infrastructure networks (DePIN), tokenization, crypto airdrops, decentralized finance (DeFi), meme coins, and altcoins. Before joining BeInCrypto, he was a community consultant at Totality Corp, specializing in the metaverse and non-fungible tokens (NFTs). Additionally, Harsh was a blockchain content writer and researcher at Financial Funda, where he created educational reports on...
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