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ARTICLE · 24 SEPTEMBER 2021

NFTs - Collectibles Or Not?

Withers LLP
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The world has been overtaken by non-fungible tokens or NFTs, particularly in the art and music worlds. Collectors throughout the US are grappling with the US tax treatment of gains from the sales of NFTs.

United StatesFinance and Banking
Sarah Verano
Sarah Verano
Charles Kolstad
Charles Kolstad
Diana Wierbicki
Diana Wierbicki
Alan Witlen
Alan Witlen
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The world has been overtaken by non-fungible tokens or NFTs, particularly in the art and music worlds. Collectors throughout the US are grappling with the US tax treatment of gains from the sales of NFTs. The key issue is whether NFTs are "collectibles" for US tax purposes in the hands of collectors, with long term gains taxed at higher rates than other long term capital gains.

Section 1(h)(4) of the Internal Revenue Code of 1986, as amended, provides that gains from the sale or exchange of collectibles are taxed at a rate of 28% rather than the usual maximum rate of 20%. Collectibles are defined under Section 408(m)(2) as follows:

  • Any work of art,
  • Any rug or antique,
  • Any metal or gem,

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