The IRS plans to tax some NFTs as collectibles — and the rich would pay up to 28% on profits

cnbc.com:

The IRS said it plans to tax some non-fungible tokens, or NFTs, as collectibles akin to art or gems — an approach that would tax profits for wealthy owners at a higher rate relative to assets such as stocks, real estate and cryptocurrency.

The federal government levies taxes on collectibles held for more than a year at a top rate of 28%. It generally levies a top 20% rate on other investments.

In a notice on Monday, the IRS said it intends to issue guidance regarding the treatment of certain NFTs as collectibles.

NFTs are essentially one-of-a-kind digital assets, which can extend beyond digital art to things like tweets and GIFs. They sometimes also give owners a right with respect to a non-digital asset, like a right to attend a ticketed event or certify ownership of a physical item.

The IRS requested comments from the public, which are due by June 19.

«The IRS hasn't said anything about NFTs until now,» said Shehan Chandrasekera, an accountant and head of tax strategy at CoinTracker. «This is kind of like half guidance because it's not finalized yet.»

More from Personal Finance: Here's how to report 2022 crypto losses on your tax return The last chance for some retirees to avoid a 25% tax penalty is April 1 What happens during a 'credit crunch' — and how you can prepare for one

NFT enthusiasm swelled in recent years along with the popularity of cryptocurrencies like bitcoin.

However, it has since cratered. NFT volume fell 77%, to $1.7 billion, in the third quarter of 2022 versus $7.4 billion in the second quarter, according to NonFungible.com. There was also a broad market pullback among assets like stocks and bonds last year.

The IRS plans to use a «look through analysis» to determine whether an NFT is a collectible.