NFTs have been all the rage lately, with prominent figures like Justin Bieber buying the digital artworks for millions of dollars. But what happens when you sell them? Here’s everything you need to know about NFT taxes.
What is an NFT?
You may have read the WHEON guide to NFTs, but let’s quickly recap.
Fungible tokens can be easily replaced with another kind of token. Bitcoin is fungible, Ether is fungible, fiat currencies are fungible – you get the point. You can exchange one Bitcoin for another and still have the same asset.
An NFT is just like any other crypto token because it exists solely on a blockchain. Mostly the Ethereum blockchain, but some other blockchains are slowly implementing proprietary NFT support.
However, unlike cryptocurrencies, NFTs are unique – for the most part – in that you can’t trade one for another. We say “for the most part” because it actually depends on the exact NFT you buy.
Is buying an NFT taxable?
If you buy an NFT with fiat currency, it is not taxable.
But what if you bought your NFT with ETH or BTC?
For most NFT platforms, you buy your NFT with another cryptocurrency and spending crypto is a taxable event – even if you spent it on another digital asset.
From a tax standpoint, issuing crypto is a sale of assets. Exchanging, selling and sometimes gifting your crypto is also seen as divestment. The gain from any disposal of a virtual asset is subject to capital gains tax.
Is the sale of an NFT taxable?
Yes.
You may have read our tips on selling NFTs. If you have started creating some beautiful digital artwork, or if you are a collector who has sold NFTs, you should know that these are taxable events.
Whether you are the original artist or seller, when you sell a digital asset such as an NFT, you pay capital gains tax on the profit you make from it. If you are also the artist, this can be seen as income and subject to income tax instead.
In most countries, this rule applies whether you are selling your NFT for crypto or for fiat currency. There are a few exceptions to this rule, such as in France, so check your country’s crypto tax rules.
How do I make NFT taxes easier?
There are some crypto tax software tools that make importing NFT transactions quick and easy. For example, Koinly is crypto software that you can use for free and import transactions across numerous blockchains. Do you have other asset classes? Have a look at this crypto tax guide breaking down the most common crypto assets and their tax treatment.
Contents