This week, the U.S. Internal Revenue Service (IRS) took action to address at least one concern raised by cryptocurrency investors — namely how taxpayers should deal with non-fungible tokens (NFTs).
The Treasury Department’s tax division recently published a revised draft of its form 1040 instructions for 2022 that changes the category for “digital currencies” into the more inclusive “digital assets.”
The draft instructions state that “any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar” will be considered digital assets. It listed examples such as non-fungible tokens (NFTs) and virtual currencies like cryptocurrencies and stablecoins.
A digital token “that serves as a monetary unit, a reserve of value, or a method of exchange” was defined more extensively in the last year’s “digital currencies” portion of the U.S. tax filing instructions. The crypto section may yet be revised before it becomes official because the final tax guidelines have not yet been made public.
Last year, the “virtual currency” portion of the US tax-filing instructions specifically defined a digital token that ”functions as a unit of account, a store of value, or a medium of exchange.” Since the finalised tax instructions have not been released as of now, the crypto section could be subject to changes before it is official.
According to the most recent document, crypto investors will need to work out and record their tax liability “if (they) disposed of any digital asset in 2022 that (they) held as a capital asset, through a sale, exchange, gift, or transfer.”
