Crypto thrill ride comes with the old school tax bite

Crypto thrill ride comes with the old school tax bite

The cryptocurrency tax rate for federal taxes is the same as the capital gains tax rate, which ranges from 10% to 37% for short-term capital gains in 2021 and 0 to 20% for long-term capital gains. Therefore, he said, it is possible to have long term capital gains, subject to preferential tax rates for individual taxpayers, with respect to crypto assets if they constitute capital assets and are held for more than one year. “The mere purchase of crypto with fiat, such as U.S. dollars, is not in it of itself a taxable event, nor is any unrealized (i.e., did not sell) appreciation on the asset,” said Thomas Shea, a principal in the EY Tax Services group. “However, a sale or other type of divestiture does trigger a taxable event, and is the gross proceeds less your tax basis in the asset, generally including any associated fees and costs.”

Peter Ritter, principal, Washington national tax with KPMG, said that the guidance from the IRS to date has been sparse, but it indicates that most crypto, including NFTs, are to be treated as property and not currency for federal income tax purposes. Crypto Tax Bill Up to 37%

“In addition,” he said, “the guidance seems clear that crypto and NFTs can constitute capital assets if for example, they are held for investment.” However, it has most definitely occurred to the Internal Revenue Service and they have proven quite eager to collect. 

“Of course, taxpayers need to consider state and local taxes too,” Ritter said. NFT sales made for some big headlines in 2021, as well as some big numbers, with sales totaling $25 billion, up from $94.9 billion the year before. In many cases, and although not entirely clear, he said, taxpayers likely will have ordinary income from these activities, although in some cases gain or loss can be triggered.

NFT Losses May Be Deductible Ritter noted that with crypto assets, including NFTs, it is possible to also earn income by reason of ownership, including through staking, liquidity mining, lending and other investment activities.

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