Emily Clarke

Are There Different Tax Laws for NFTs?

As the saying goes, there are only two things in life that are certain - death and taxes. Many people try to avoid the latter part of this phrase by investing in cryptocurrencies and technologies like blockchain and non-fungible tokens (NFTs). While this area of digital finance has escaped the long arm of the Internal Revenue Service for years, it's worth noting that changes to tax laws may put an end to tax-free NFT investing.

Are NFTs Taxed?

For the most part, buying an NFT is much like buying any other type of investment. The seller usually gets taxed based on the loss or gain in the value of the NFT. The buyer may need to pay sales tax, and capital gains taxes may become an issue for the buyer in the future. Current NFT tax laws are somewhat limited in their approach to the topic. This is because NFTs and cryptocurrencies are still relatively new concepts.

When an NFT is Purchased Using Cryptocurrency

Additionally, because NFT purchases generally do not involve fiat currency, NFT tax laws do not necessarily cover every scenario in which funds exchange hands. If an NFT is purchased with cryptocurrency, both the buyer and the seller may not have the proper records to present to the IRS regarding the transfer of funds.

This can make it difficult to prove that taxes need to be paid and if taxes are due, how the taxes should be paid. If cryptocurrency was used to buy the NFT, should taxes on the purchase also be paid in cryptocurrency? These are issues that financial experts and lawmakers are currently investigating and debating in an attempt to codify tax laws as they pertain to NFTs and cryptocurrencies.

Work With a Tax Expert

If you're concerned about your tax liabilities for NFT transactions, you're encouraged to work with a tax advisor who specializes in these matters. Each situation is unique, and a tax advisor will be able to provide recommendations based on your circumstances to help you stay within the law.

Author Resource:-

Emily Clarke writes about portfolio management, finance tracking and Consumer SaaS services. You can find her thoughts at crypto tax guide blog.