During a recent Squawk Box show, it was revealed that bad news awaits those who are buying non-fungible tokens (NFTs) for Bitcoin or Ethereum: they will have to pay the capital gains tax on those deals.
CNBC is spreading a word of warning to crypto holders if they are after trendy NFTs.
NFT hunters could face large tax bills in 2021
CNBC's wealth reporter and author, Robert Frank, has revealed that the U.S. Internal Revenue Service will be after those who spend cryptocurrencies (Bitcoin and Ethereum) on non-fungible tokens, which have become a new craze with famous and successful CEOs, Jack Dorsey and Elon Musk, involved in trading NFTs.
The reporter has warned that the IRS will consider crypto payments used to buy NFTs as capital gains due to the "disposition of assets" rule.
Frank added that most crypto holders believed those transactions to be tax-free, but they are wrong.
Platforms that are now selling NFTs, the reporter says, do not report their profits to the IRS since they do not have a full price history for each buyer.
These people will not be taxed on their crypto NFT purchases
According to the reporter, this tax does not apply to non-American overseas individuals. He mentioned the recent sale of the NFT sold by Beeple.
The buyer was a tax resident of Singapore, which does not have a capital gains tax. Overseas buyers are using their gains to transfer them into another form and avoid paying taxes for it, Robert Frank believes.