NFTs and US Taxes While Living Abroad

The IRS treats non-fungible tokens (NFTs) as property, so the basic rules that apply to cryptocurrency also apply to NFTs: buying an NFT is not a taxable event, selling one triggers a capital gain or loss, and receiving an NFT as payment for services is ordinary income at fair market value when received. For expats who create and sell NFTs as part of their business activity, that income is foreign earned income eligible for the Foreign Earned Income Exclusion if you qualify under the Physical Presence or Bona Fide Residence test. The IRS has also indicated that certain NFTs may be treated as collectibles rather than standard capital assets, which caps the long-term capital gains rate at 28% for collectibles held more than a year. Whether an NFT qualifies as a collectible depends on whether the underlying asset it represents would itself be classified as a collectible, such as art or antiques, and this remains an evolving area of IRS guidance. US expats should track every NFT transaction with dates, dollar amounts, and the nature of each transaction, since the IRS is actively expanding reporting requirements in this area.