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The taxation of nonfungible token transactions

The CPA Journal. July 30, 2021

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Abstract

Additional guidance is issued, taxpayers will need to determine the tax consequences of their NFT transactions by applying general principles of existing tax law. […]capital losses on cryptocurrency transactions are deductible, subject only to capital loss limitations. The transaction results in a $4,000 capital gain. Because Jennifer held the Bitcoin for less than one year, her $4,000 capital gain is considered short-term and will be taxed at her marginal tax rate of 32%. Bitcoin is considered an investment asset. allowing Jennifer to deduct her capital loss subject to capital loss limitations. Because she does not have any capital gain transactions, Jennifer will only be able to deduct $3,000 of her capital loss this year, and the remaining $1,000 will carry forward to future years. At six months after purchasing an art NFT for $14,000, Jennifer sells it for $18,000, resulting in a $4,000 capital gain. Because Jennifer held the NFT for less than one year, her $4,000 capital gain is considered short-term and will be taxed at her marginal tax rate of 32%.

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