7727.04 / Are there any tax consequences to the buyer when a non-fungible token is sold or transferred?
The mere purchase of an NFT using traditional currency does not create tax liability for the buyer. However, the result is different if the buyer purchases the NFT using cryptocurrency. In that case, it becomes possible that both the buyer and seller will be subject to taxation because any transaction where cryptocurrency is sold or traded is potentially a taxable event.
Virtual currency is taxed according to the rules governing property transactions.1 If the cryptocurrency appreciated in value while the taxpayer held it, that appreciated value is taxable when the cryptocurrency is sold or exchanged for other property. When the cryptocurrency is sold or exchanged, the holder will have a taxable gain (or loss) depending on the holder’s tax basis in the cryptocurrency. See Q 692 for a detailed explanation of the rules on determining tax basis.
Generally speaking, if the NFT is exchanged for virtual currency and is worth more than the buyer’s tax basis in the virtual currency used to purchase the NFT, the buyer will recognize gain on the transaction. For example, if the buyer purchases an NFT valued at $5,000 with $4,000 worth of bitcoin, the buyer creates a gain (the buyer could also create a loss in the transaction). Until the IRS specifies otherwise, that gain or loss is subject to the generally applicable capital gains rules (including the rules on collectibles, see Q ).