NFT – Collectibles or not? – Finance and banking



United States: NFT – Collectibles or not?

To print this article, simply register or connect to Mondaq.com.

The world has been overtaken by non-fungible tokens or NFTs, especially in the worlds of art and music. Collectors across the United States are grappling with the US tax treatment of gains from the sale of NFT. The key question is whether NFTs are “collectibles” for US tax purposes in the hands of collectors, with long-term gains taxed at higher rates than other long-term capital gains.

Section 1 (h) (4) of the Internal Revenue Code of 1986, as amended, provides that gains from the sale or exchange of collectibles are taxed at a rate of 28% rather than the usual maximum rate of 20%. Collectibles are defined in section 408 (m) (2) as follows:

  • Any work of art,
  • Any carpet or antique,
  • Any metal or gem,
  • Any stamp or coin,
  • Any alcoholic beverage, or
  • Any other tangible personal property specified as a collector’s item by the IRS.

There are no regulations or other guidelines issued by the IRS that further define the term “collectibles.”

The question of whether an NDT constitutes a ‘collectors item’ has been addressed in a number of articles in Forbes, CNN, Coindesk, TokenTax and elsewhere, with some articles concluding that NDTs are collectibles while others others fail to come to a firm conclusion.

NFT collectors take note

In our opinion, the question of whether a TVN is a collector’s item depends entirely on the rules of interpretation of the law and on how one interprets the wording of point (f). Item (f) contains a reference to “any other tangible personal property”, so the question is whether the reference to “any other tangible personal property” means that the property referred to in items (a) to (e) is also limited to “tangible” personal property. DFTs are clearly works of art, but they are also clearly intangible and non-tangible personal property. If the reference in (f) limits the term collectibles to items that constitute tangible personal property, then NFT would not be collectibles and therefore would be taxed at the lower general rate of long-term capital gains. Note that to benefit from this lower capital gain rate of 20%, the collector must in all cases have held the NFT for at least 12 months.

Whether or not NFTs are classified as collectibles, collectors should remember that, as with gains from the sale of any capital asset, gains from the sale of an NFT may additionally be subject to a 3.8% additional net investment tax and other state taxes. .

Finally, we note that determining whether NFTs should be classified as collectibles may have broader implications than the applicable tax rate. For example, with few exceptions, acquisitions of “collectibles” by individual retirement accounts (IRAs) or qualified pension plans can be penalized and should generally be avoided.

NFT and tax in the hands of the original artist

By the way, NFTs would not constitute an asset in the hands of the original artist, either because they are self-created artistic compositions or because they are part of the inventory in under section 1221 (a) (1), (3). Thus, in the hands of the artist, any gain from the sale of NFT would constitute ordinary income that would be taxed at rates of up to 37% federally plus any applicable state taxes.

Tax reform

In recent months, US lawmakers have addressed various legal issues relating to DTV as well as tax reform in general. For this reason, in addition to other changes in the DTV regulatory landscape, collectors and artists should take note that federal ordinary income rates, capital gains rates, and collectibles rates may be subject. to increases in the coming days.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

POPULAR ARTICLES ON: United States Finance and Banking

The 2020 Anti-Money Laundering Law

Morrison & Foerster LLP

The purpose of this article is to educate stakeholders about the Anti-Money Laundering Act of 2020 (AMLA), explain its impact on the US anti-money laundering (AML) regime and put highlight critical updates for financial institutions.

CFPB publishes small business loan rule proposal

Mayer brown

Today, the Bureau finally released its long-awaited draft regulations on data collection on small business loans. Section 1071 of the Dodd-Frank Act required the CFPB to collect data …

Are Revenue Sharing Agreements Loans? CFPB says yes

Sheppard Mullin Richter & Hampton

Last month, we wrote a blog about a consent order the California Department of Financial Protection and Innovation (DFPI) made with a manager of revenue sharing agreements.

FINRA advises investors on SPAC warrants

Cadwalader, Wickersham & Taft LLP

FINRA has provided advice to investors considering investing in Special Purpose Acquisition Companies (“SPACs”), which typically consist of a purchase of “units” comprised of shares and warrants.

IBOR Transition Digest

Mayer brown

Welcome to the latest issue of Mayer Brown’s IBOR Transition Digest, a periodic collection of global regulatory and market developments and information on the complex issues facing financial market participants.


Previous Jeffersonville Public Art Commission to Present Treasure Hunt and Unveil Art Installation
Next Hagerstown man faces federal charges for allegedly forging documents in order to obtain COVID funds | USAO-MD