Taxes On NFTs

As of right now, NFTs are typically taxed at the IRS’s collectibles tax rate. As it stands, NFTs that appreciate in value and are held for less than a year are to be taxed at 37%. Pieces owned for more than a year will fall under the maximum 28% tax rate.

This can become further complicated if you decide to use crypto to fund your NFT purchase. Those using gains from cryptocurrency can expect to be hit with an additional capital gains tax on crypto that was sold to buy an NFT. This is something that many newer participants in the NFT market aren’t aware of. They often think that they can Write Off NFT Taxes because they simply transferred their cryptocurrency to make an NFT purchase. However, it doesn’t work that way. Expect to pay taxes on any crypto that was sold at a profit.

Why Most NFT Buyers Use Crypto to Fund Their Purchases

According to the experts, most NFT collectors use cryptocurrency to fund their NFT purchases simply because there is a large overlap between those interested in digital currency and those interested in NFTs. Those who buy NFTs are digital natives who live on the internet and have been involved in the cryptocurrency space for quite some time.

Many NFT buyers have held on to their crypto for years and have seen their portfolios increase in value exponentially. NFTs present an opportunity for people to spend their crypto for the first time. Buying a house with Bitcoin or Ethereum on the other hand is not as simple. Purchasing an NFT with crypto is one of the few things you can spend your cryptocurrency on.