How to Write Off your NFTs as Tax Losses
There are now tools popping up which allow you to sell your NFTs for $0.01, allowing you to write off the entire purchase price on your taxes.
We’ve talked a bit about how NFT volumes are down some 95% from peak–and their prices have moved along with that. Even before the NFT market was crashing, many projects were launching at prices of 1 ETH to buy into and ended up completely worthless. Just like any down market though, there’s always an upside.
It’s around this time every year that I start hearing about how equities will crash because everyone is selling to write off losses for the year. That’s called tax-loss harvesting. Turns out, you can do the same thing with NFTs. Projects are starting to crop up around NFT tax-loss harvesting–presumably they’re launching now because there were no losses before.
Here’s how it works: you sell your NFT to a service for $0.01, making it a loss of price you bought at minus $0.01, and these services usually take some sort of fee. Of course, you have to pay the gas fee for the transaction, but luckily these days that’s a few bucks if the contract is made well and the transactions are in bulk.
When tax time rolls around, you can take the entire amount of loss you get out of this process and decrease your capital gains, meaning any money you made trading cryptos can be offset by money you lost selling NFTs. Some people are saving tens of thousands on their taxes doing this. Unsellable NFTs is one of the recent tools to pop up which does a good job of bulking contract transactions, keeping gas costs low and making it pretty easy to offload multiple NFTs at once. This is what I’m using for my Ethereum based NFTs.
I spent a little bit of time halfheartedly trying to flip NFTs, which turned out to be a bad idea. I spent considerably more than $0.01 per NFT, so I’m going to pay a good chunk less on my taxes. All said and done, this is a 5 minute transaction that costs $5-$50 upfront and saves hundreds to thousands when you pay your taxes.
The biggest downside I’ve found in these tools is a lack of universal support. I played around in probably a half dozen different NFT ecosystems over the past year, and more on the DeFi side. All projects launch with Ethereum support since it’s the largest market and grow into other ecosystems. Unsellable NFTs supports the common Ethereum NFT contracts, but they’re still working on support for other blockchains.
The folks from Unsellable NFTs have talked about how they make be making the largest collection of NFTs in the world. You can check out all the NFTs they've bought in their OpenSea collection.