IRS Broadens Definition of Digital Assets to Include NFTs
Cryptocurrencies and non-fungible tokens (NFTs) will both be included on the IRS tax form in 2022, under a broader and more defined category. Cryptocurrencies, stablecoins, and non-fiat currencies are described in a proposed Internal Revenue Service bill for Digital Assets.
As defined in the recent draft, a digital asset is any digital representation of value that is recorded on a cryptographically secured distributed ledger.?
“For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins,” according to the draft instructions.
A question on Form 1040 in 2021 asked taxpayers about receiving, selling, or trading virtual currency. This question will be changed in 2022. Taxpayers who handled crypto during the year are required to complete the Digital Assets section on their income tax returns.
According to the latest statement, crypto investors who dispose of a digital asset by selling, exchanging, gifting, or transferring, will need to calculate and report their taxable income.?
For instance, providing goods or services might result in receiving a digital asset as a reward, or an individual may receive a digital asset as payment. In this category, digital assets can also be mined or staked, traded in exchange for goods, exchanged, or traded for new digital assets.
When individuals exchange digital assets for services or sell them to consumers, they must calculate their capital gain or loss on the digital assets sold during the year on Schedule D of their tax return.
CBW - External Analyst