What about NFT taxation for expats?

NFTs (Non-Fungible Tokens) are subject to US taxation, and their treatment depends on whether you are a creator, buyer, seller, or collector. The IRS issued Notice 2023-27 providing initial guidance on NFT taxation, with more detailed rules expected.

For NFT Creators: If you create and sell NFTs, the proceeds are generally treated as ordinary income from a trade or business, reported on Schedule C. This includes primary sales and, depending on the platform, royalties from secondary sales. As business income, it may qualify for the FEIE if you perform the creative work while physically located in a foreign country. However, self-employment tax still applies.

For NFT Buyers and Sellers: When you buy an NFT and later sell it, the gain or loss is treated as a capital gain, similar to selling other property. Short-term gains (held less than one year) are taxed at ordinary income rates; long-term gains (held more than one year) at preferential rates. However, the IRS has indicated that certain NFTs may be classified as collectibles, which would subject long-term gains to a higher maximum rate of 28% instead of the standard 20%.

The IRS uses a 'look-through' analysis to determine if an NFT is a collectible. If the underlying asset the NFT represents would be a collectible (artwork, antique, gem, etc.), then the NFT itself is treated as a collectible. An NFT representing a piece of digital art would likely be classified as a collectible, while an NFT representing a utility token or access pass might not be.

Minting an NFT from your own creation is generally not a taxable event. Purchasing an NFT with cryptocurrency is a taxable disposal of the crypto (you must recognize gain or loss on the crypto used). Receiving an NFT as an airdrop or gift follows the same rules as receiving other crypto — airdrops are taxable at fair market value when received.

For expats, the FEIE does not apply to capital gains from NFT trading — only to earned income from creating and selling NFTs as a business. Foreign Tax Credits may be available if your country of residence taxes NFT transactions.

Report NFT sales on Form 8949 and Schedule D. Creator income goes on Schedule C.