As NFT-mania continues to permeate the crypto-space, a tax bill could await holders as tax season looms in the U.S.
Tax, Tax, and More Tax
According to the Internal Revenue Service (IRS), each time cryptocurrencies are exchanged for NFT, a taxable event occurs.
This is because the IRS equivocates the exchange of cryptocurrencies with the exchange of assets. This means that crypto-holders are liable for capital gains tax if they sell or exchange their crypto at a profit.
“…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.”Internal Revenue Service
According to Shehan Chandrasekera, head of tax strategy at cryptocurrency analyst CoinTracker, the average crypto-holder has “very poor” knowledge of these implications.
“I just don’t think people know about it.”Shehan Chandrasekera – Head of Tax Strategy – CoinTracker
Chandrasekera went on to say that the April tax date could have major consequences for the so-called “NFT-Mania.”
Indeed, that so-called mania reached new heights just days ago. A collection by digital artist Beeple sold for over $69 million towards the end of last week.
The sale, which was hosted by world-famous auction house Christie’s, broke the record for the single highest amount raised by an NFT collection to date. Moreover, the auction marked the first NFT offering by a major auction house in the world.
In fact, the collection itself is one of the largest in the NFT-space, with exactly 5000 pieces dating back over a decade.
Overall, the NFT market is exploding, with over $400 million worth of pieces sold to date (excluding the Beeple collection). As celebrities from Elon Musk to Torey Lanez also endorse crypto-art, there is no indication that that momentum will slow.
The Future of NFTs
With Christie’s taking the lead amongst the traditional art-world, other auction houses are warming up to the space.
Just yesterday, Sotheby’s, another world-famous auction house, announced its plans to enter the space. According to CEO Charles Stewart, the auction house will host several pieces by popular digital artist Pak.
Explaining the decision, Stewart said:
“It’s still very early with crypto art in general, but there’s a lot here that’s really exciting and we think has staying power.”Charles Stewart – Chief Executive Officer – Sotheby’s
And with Google searches for “NFT” now significantly higher than searches for both “cryptocurrency” and “blockchain,” he might indeed be right. Nevertheless, investors shouldn’t ignore the suggestion that large tax bills could become due in the next few weeks.
Whether, this will have an impact, short-term or long on the space is still to be seen.