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IRS Expands Key US Tax Language

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IRS Expands
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  • Newly released draft instructions change the language from “virtual currency” to broader “digital assets
  • The language for the 2022 tax year has been modified to include NFTs by the US IRS
  • NFTs are now considered digital assets by the tax authority, making them eligible for taxation

The goal of the change is to make it easier for taxpayers to file crypto-related taxes.

This week, the Internal Revenue Service (IRS) of the United States took action to answer at least one question posed by crypto investors:how non-fungible tokens (NFT) are accounted for by taxpayers.

An updated draft of the Treasury Department’s 2022 instructions for form 1040 filers has been released by the tax division. This draft replaces the previous category of “virtual currency” with more expansive new language on “digital assets,” which explicitly recognizes NFTs.

Capital gains on digital assets are taxable income items.

The draft instructions state that digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. Non-fungible tokens (NFT) and virtual currencies like cryptocurrencies and stablecoins are examples of digital assets.

The definition of a digital token that functions as a unit of account, a store of value, or a medium of exchange was narrowed in the previous year’s virtual currency section of the U.S. tax-filing instructions.Since the final tax instructions haven’t been out yet, the crypto section might need some tweaking before it’s done.

According to the most recent document, crypto investors will be required to calculate and report taxable income if you disposed of any digital asset in 2022 that you held as a capital asset, through a sale, exchange, gift, or transfer.

ALSO READ: U.S. Inflation Is Sticky At 8.2%

India introduces a 30% tax on NFTs in February

To close any loopholes that could make tax evasion easier or make fraudsters more likely targets, US regulatory bodies have concentrated on the NFT sector.

The Securities and Exchange Commission (SEC) began an investigation into Yuga Labs last week to determine which NFTs are included in the same category as stocks. The US Capital Markets watchdog also started an investigation into NFTs earlier this year. It focused primarily on fractionalized NFTs, which it said were securities.

NFTs are now recognized as taxable items in a number of countries, including the United States. Under virtual assets, India will implement a 30% tax on NFTs in February. In the same month, Singapore also announced that NFTs would be subject to personal income tax. Israel followed suit in March, putting NFTs taxation under capital gains tax.

Steve Anderrson

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