Can I use the original purchase date of my Ethereum and ignore my NFT trades? Or do I need to hold an NFT for a year for it to be short term capital gains upon selling?

[loiloiloi6]

I've made about 50k this year from NFTs not sure how to report it, haven't sold yet but I may sell before April when taxes are due

[rjs]

The cutoff for reporting sales is the end of the calendar year, not the tax filing date. On your 2021 tax return you only report sales IN 2021. Any sale after December 31, 2021, goes on your 2022 tax return. It doesn't matter whether the sale is before or after the filing date. Until you actually sell something, you have nothing to report on your tax return.

Using Ethereum, or any cryptocurrency, to buy an NFT or anything else is a sale of the Ethereum that you used. You have to report that sale on your tax return for the year that you used the Ethereum to purchase the NFT.

If you sell an investment at a gain after holding it for more than a year, it is a long-term capital gain, not short term. If you held it for a year or less the gain is short-term. This applies to an NFT or any other investment.

The purchase date of the NFT is the date you bought the NFT, not the date that you purchased the Ethereum that you used to buy the NFT. The Ethereum and the NFT are two separate investments. You can't pretend that they are the same and ignore the exchange of Ethereum for the NFT.

[loiloiloi6]

Very helpful reply, thank you. And what if I won the NFT as a prize? I read that prize money is considered regular income. But I will have to sell the NFT and then the Ethereum, and the prices may fluctuate in that short time, so is it still considered prize money? Or capital gains? Thanks

[Critter-3]

Ok ... let's break this down ... you got stock as a prize ... the prize winnings are taxable and reported on the tax return.  This now becomes the basis of this stock.  When you sell the stock you will only pay tax on the profit ... you do not pay taxes a second time on the prize winnings.

For instance you win $100 of stock ... you will report $100 of other income on the tax return in the year it was won ... this is taxed as ordinary income at your regular tax rate. 

Then at sometime in the future you sell this stock say for $150 and you pay taxes on the $50 profit only.  If you kept the stock for more than one year you get long term capital gains treatment otherwise it is taxed as ordinary income.  

[rjs]

To add to what Critter-3 said:

The NFT is treated exactly the same as stock. Everything that Critter-3 said applies.

If you sold the stock or NFT and received Ethereum as payment for it, the Ethereum is then a new investment. When you sell the Ethereum, that's another investment sale that you have to report. The basis of the Ethereum is the value on the date that you received it as payment for the stock or NFT. You have a gain or loss on the Ethereum depending on whether you sell it for more or less than the basis. The gain or loss is short-term or long-term, depending on how long you held it, from the date you received the Ethereum as payment to the date that you sold it.

Actually, Critter-3's reply provides a good way to think about this. Think of Ethereum as a stock. Think of an NFT as a different stock. That should make it more clear how to report the transactions.