What is an NFT
NFTs are currently taking the digital art and collectibles world by storm. Digital artists are seeing their lives change thanks to huge sales to a new crypto-audience and celebrities are joining in as they spot a new opportunity to connect with fans. But digital art is only one way to use NFTs. Really they can be used to represent ownership of any unique asset, like a deed for an item in the digital or physical realm.
Types of NFT's
Art, Music, Video game items, Trading cards/collectibles, Big sports moments, Memes, Domain names, Virtual fashion, and other miscellaneous online items.
How can I set up my coin wallet to accept cryptocurrency payments?
- Link a cryptocurrency wallet to the NFT platform which can be created by completing KYC formalities with an exchange like Coinbase or Binance
- Receive tokens in the Metamask wallet you used to link and sell NFT's
- Metamask provides users with multiple wallet options where coins of several types can be sent or received
How is NFT revenue taxed
NFT's are subject to double taxation
- Income tax based on the selling price of an NFT - ordinary income/business income
- Capital gain/loss calculated on the difference between cost basis and sales price of the tokens received in exchange of the NFT (Long term/Short term depending upon the holding period)
- Expenses incurred in the process of creating an NFT can be offset against the sales revenue generated
- If the NFT generates royalty revenue, it would be subject to an additional taxable income stream
NFT and DeFi
DeFi applications let you borrow money by using collateral. For example you collateralize 10 ETH so you can borrow 5000 DAI (a stablecoin). This guarantees that the lender gets paid back − if the borrower doesn't pay back the DAI, the collateral is sent to the lender. However not everyone has enough crypto to use as collateral.
Projects are beginning to explore using NFTs as collateral instead. Imagine you bought a rare CryptoPunk NFT back in the day − they can fetch $1000s at today's prices. By putting this up as collateral, you can access a loan with the same rule set. If you don't pay back the DAI, your CryptoPunk will be sent to the lender as collateral.