How do I account for NFTs?
A non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain , a form of digital ledger. Types of NFT data units may be associated with digital files such as photos, videos, and audio. Because each token is uniquely identifiable, NFTs differ from blockchain cryptocurrencies. They can be purchased with cryptocurrencies (Wikipedia).
The question is: how do we treat NFTs from and accounting and tax point of view?
Classification
2. if acquired through a purchase, the NFT is recorded at the purchase price and can be amortized over a period of 15 years (180 months) starting from the month of purchase.
Taxation
– Creation/purchase of an NFT doesn’t rise a taxable event.
– Sale/exchange of an NFT creates a tax event, categorized as:
1. capital assets if held for investment, therefore gain/loss is calculated using the short term/long term tax rate applicable.
2. property subject to section 1231 if held to do business, and therefore amortized.
3. Any continuous income received from the token (royalties) is considered regular taxable income.
– If the NFT becomes worthless:
1. not deductible if owned for personal use.
2. deductible if it’s owned in a trade or business.
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