The Internal Revenue Service (IRS) of the United States (US) took action this week to answer at least one question for cryptocurrency investors: how taxpayers account for non-fungible tokens (NFTs).
The Treasury Department's tax division has issued an updated draft of its 2022 instructions for form 1040 filers, which replaces the old category for "virtual currency" with broader new language on "digital assets," including explicit recognition of NFTs.
According to the draft instructions:
"digital assets are any digital representations of worth that are documented on a cryptographically secured public ledger or any related technology." "Non-fungible tokens (NFTs) and digital currencies, such as cryptocurrencies and stablecoins, are examples of digital assets."
The prior year's "virtual currency" section of the US tax-filing instructions was a relatively narrow definition of a digital token that functions as a unit of account, a store of value, or a medium of exchange. Because the final tax instructions haven't been published, the crypto section could still be reworked before it becomes official.
According to the most recent document, cryptocurrency investors will have to determine and report taxable income if they discarded any digital asset that they managed to hold as a capital asset in 2022 thru a sale, exchange, gift, or transfer.
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