NFT holders are on edge after the IRS announced that it is approaching final rules on the taxation of NFT assets.
The central proposal is to treat NFTs in the same way as fine wine, art, or collectibles like stamps, according to a document published Tuesday by the US Internal Revenue Service (IRS).
As part of a public call for comments on its upcoming proposal for final NFT tax rules, the IRS revealed that NFTs will be taxed like the underlying assets they reflect digital ownership of.
For example, if you purchased an Australian opal NFT from the upcoming Pixelplex Opalverse marketplace, it would be taxed as if you had purchased (and collected) the underlying Australian opal directly.
“The IRS intends to determine when NFTs are treated as collectibles using a ‘look-through analysis,’” explained IRS Publications,
“Under the look-through analysis, an NFT is treated as a collectible if the right or property related to the NFT falls within the definition of a collectible in the tax code”.
IRS NFT tax rules may affect retirement accounts
These proposals mark a much-needed clarification after a long period of silence following the October inclusion of NFTs as a category on IRS tax filing documents.
But some worry that this could expose NFT investors (especially those of older age) to significant taxation in retirement accounts.
The document reads, “Section 408(m)(2) of the Tax Code provides a specific list of items that constitute collectibles for certain purposes.”
“The acquisition of a collectible by an individual retirement account (IRA) or individually directed account of a qualified plan is treated as a distribution from the account equal to the cost of the collectible.
“Generally, collectibles are also not an advantageous capital-gains tax treatment [up to 28%] as other capital asset.
With the opening of the public comment process ahead of the expected finalization of the NFT tax proposals on June 19th, many in the NFT world are already rushing to evaluate their NFT portfolios in light of the news.