NFTs have been all the hype recently, with high profile figures like Justin Bieber buying the digital art pieces for millions of dollars. But what happens when you sell them? Here is 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 summarise.
Fungible tokens are easily replaced by another kind of token. Bitcoin is fungible, Ether is fungible, fiat currencies are fungible – you get the point. You can trade one Bitcoin for another and still have the same asset.
An NFT is just like another crypto token in that it exists solely on a blockchain. Most often the Ethereum blockchain, but some other blockchains are slowly implementing NFT support of their own.
Unlike cryptocurrencies though, NFTs are unique – for the most part – in that you can’t trade one for another. We say ‘for the most part’ because this actually depends on the exact NFT you’re buying.
Is buying an NFT taxable?
If you’re buying an NFT with fiat currency – this isn’t taxable.
But what if you bought your NFT with ETH or BTC?
For the majority of NFT platforms, you’ll be buying your NFT with another cryptocurrency and spending crypto is a taxable event – even if you spent it on another digital asset.
From a tax perspective, spending crypto is a disposal of an asset. Swapping, selling and sometimes gifting your crypto are also viewed as disposals. The profit from any disposal of a virtual asset is subject to Capital Gains Tax.
Is selling an NFT taxable?
Yes.
You might have read our tips on selling NFTs. If you’ve started minting some beautiful digital art pieces, or if you’re a collector who has sold NFTs, you should know that these are taxable events.
Whether you’re the original artist or seller, when you sell a digital asset like an NFT, you’ll pay Capital Gains Tax on any profit you make from it. If you’re also the artist – this might be seen as income and subject to Income Tax instead.
In most countries, this rule will apply regardless of whether you’re selling your NFT for crypto or for fiat currency. There are a couple of exceptions to this rule, like in France, so check your country’s crypto tax rules.
How do I make NFT taxes easier?
There are a number of crypto tax software tools which make importing NFT transactions quick and easy. For example, Koinly is a crypto software that you can use for free and import transactions across numerous blockchains. Got other asset classes? Check out this crypto tax guide which breaks down the most common crypto assets and their tax treatment.