NFTs which are acquired with crypto gains will attract taxes, according to new CNBC report
There’s a not-so-subtle reminder for NFT maniacs in the US amidst the ongoing frenzy – NFT purchases made with crypto capital gains attract taxes to the tune of 20%.
If you paid for a digital collectible with your Bitcoin or Ethereum gains, you must think of the tax implications. Not just by Rarible, Sweet, or any other NFT marketplace, but also by the American tax watchdog. US Internal Revenue Service (IRS) will levy taxes on NFT purchases made with profits of cryptocurrencies. The disposition of asset tax and some other rules makes this tax mandatory.
Taxes on capital gains of disposed assets are common with traditional asset classes, but contrary to popular belief, they also apply to the digital asset space.
This tax will amount to 20% of the accrued gains on the cryptocurrency. For instance, if a person gains $500 from holding bitcoin and buys an NFT with the profit, the IRS mandates him to pay $100 in tax.
On CNBC’s Squawk Box, Robert Frank elaborated:
“As it turns out, collectors who are buying NFTs with their cryptocurrency gains could face large tax bills this year for deals that most thought were tax free”
Moreover, he stated the IRS considers cryptocurrencies as a capital asset, not just currencies. By doing so, it highlights that they can accrue gains or losses and should consequently attract capital gain taxes.
From the look of things, NFT marketplaces are also in the dark regarding this. Robert said that many NFT operators do not file with the IRS due to a lack of cryptocurrency price history for buyers. It is also unclear how the IRS will act about this, because of the difficulty in tracking cryptocurrency transaction history.
Taxes On Crypto – The New Norm
Cryptocurrencies have transitioned over the last years in regards of regulations. The huge traction brings them almost on par with conventional asset classes. As a result, regulatory bodies are according them similar laws.
In Korea, bitcoin capital gains will attract taxes from next year. The country’s tax agency, NTS, announced that it would impose 20% tax on gains exceeding 2.5 million won.
As the law nears enaction, the body cracked down on bitcoin tax evaders in the past few days. The Korea Herald reported that the National Tax Service apprehended 2400 defaulters. They allegedly hid their assets in cryptos to avoid paying tax on them.
Cryptocurrency tax evasion has become from a ‘common menace’ to a full-blown criminal offense. According to a report by the United States’ Attorney General’s Cyber Digital Task Force:
“Not reporting capital gains from the sale or other disposition of the cryptocurrency, not reporting business income received in cryptocurrency, not reporting wages paid in cryptocurrency, or using cryptocurrency to facilitate false invoice schemes designed to fraudulently reduce business income are examples of evasion of assessments”
According to US laws, tax evasion has a fine of $100,000 and a 5-year jail term.