The US Treasury Department and the IRS have released new proposed regulations on sales and exchanges of digital assets such as cryptocurrencies and Non-Fungible Tokens or NFTs. What taxes would a US taxpayer owe associated with cryptocurrency transactions or the Sale of a Non-Fungible Token? The proposed rules are open to public comment until October 30, 2023.
Under the new proposed regulations on sales and exchanges of digital assets brokerages and exchanges would be required to report all information regarding sales and exchanges in 2025 to the Internal Revenue Service (IRS) and all information regarding sales or exchanges beginning in the 2026 calendar year. US and international brokerages and exchanges would be required to provide a new Form 1099-DA in order to determine if taxes are owed and additional information to assist with the calculation of a loss or gain in a short-term or long-term basis.
The challenge to date is confusion regarding what constitutes a “transaction” of a digital currency such as bitcoin or other cryptocurrency or the sale of an NFT. Presently, US taxpayers must claim income on the sale or transfer of any cryptocurrency, even if it is from one wallet or exchange to another. Presently, cryptocurrency is considered as “property” under IRS rules. Therefore, if a transaction (sale) occurred within a year or less from the date of acquisition any gain would be required to be reported as a short-term capital gain. If the asset was held for more than a calendar year the income would be reported as a long-term capital gain. Losses are reported using the same calendar basis, however there is presently a limitation on the amount of losses which may be applied to any given tax year.
The proposed regulations on sales and exchanges of digital assets also apply to the transfer of a digital asset from one wallet or exchange to another (even though no sale occurred). In the event of a transfer, the taxpayer would use the purchase price as the “basis” for that investment, and the value of the cryptocurrency at the time of the transfer would be used to determine any loss or gain.
NFTs are considered to be personal property and any transaction generates the same type of gain or loss.
Public hearings have been scheduled for November 7, 2023 and November 8, 2023 based upon the number of speaking requests submitted by the public for each event. The Treasury Department and the IRS will use the feedback provided by US taxpayers to help shape the final regulations for cryptocurrency, NFTs and other digital assets.
How will the IRS learn about your domestic and offshore digital asset holdings and transactions? Do you have questions regarding your obligations as a US taxpayer with regards to cryptocurrency or NFT transactions and coming into compliance with previously unreported digital asset income and/or losses?
