2021 was a boom year for cryptocurrencies and NFTs, with many investors realizing massive financial gains when selling crypto or NFTs. Meanwhile, this has moved so fats that we have some uncertainty as to how the IRS will treat these gains. Of course investors will need to declare realized gains, but the applicable tax rate may be different between crypto and NFTs:

Specifically, an investor who sells an NFT, such as digital art, may owe a top 31.8% federal tax rate on any earnings. By comparison, appreciation in bitcoin, ethereum and other digital coins is subject to a 23.8% top rate.

That’s because NFTs are likely collectibles, for tax purposes. Collectibles carry a higher maximum tax rate on capital gains relative to assets like stocks, bonds and cryptocurrencies.

The IRS has not made a formal announcement, but tax experts are fairly confident that NFTs will be treated as collectibles. Keep this in mind as you plan your finances for 2022.