Offsetting Capital Gains with Worthless NFTs
As the year comes to a close, NFT traders are discovering a new use for their worthless tokens: selling them at low prices to offset capital gains on their taxes. This strategy, known as tax loss harvesting, allows traders to minimize their taxable liability and save money. However, with many NFT projects abandoned or lifeless, finding buyers for worthless NFTs can be challenging.
Projects Helping with Tax Loss Harvesting
Fortunately, projects like Harvest.Art, Unsellable NFTs, and Sol Incinerator have emerged to assist traders in tax loss harvesting. These projects aim to purchase worthless NFTs from traders in order to help them offset their capital gains.
The Peak of Trading Activity
According to pseudonymous developer NetDragon, co-founder of Harvest.Art, trading volume typically increases from December 26th until the midnight hours of the new year. This surge in activity is driven by traders looking to make last-minute tax strategies.
Tax Planning and NFT Investors
Skyler Hallgren, director of partnerships at Unsellable NFTs, highlighted that many NFT investors are not well-versed in end-of-year tax planning compared to traditional investors. This lack of knowledge makes projects like Unsellable and Harvest essential for educating and assisting these investors.
Business Models for Buying Worthless NFTs
Each project has a different business model for purchasing worthless NFTs. Unsellable pays one penny per NFT and charges a service fee for each transaction. Harvest pays one gwei per NFT sold and offers bid tickets as an additional incentive.
The Cost of Offloading NFTs
The total cost of offloading NFTs varies, including gas fees and service fees. For example, a recent sale of 459 NFTs through Harvest cost around $300 in gas fees. Similarly, a recent sale of 80 NFTs through Unsellable cost about $630 after service fees and gas fees.
Hot Take: IRS Investigation on Crypto Tax Evasion
Traders should be more mindful of their tax obligations due to the IRS’s increased focus on crypto tax evasion. The IRS’s criminal investigation division is now scrutinizing cases related to capital gains, mining income, and non-disclosure of cryptocurrency ownership to evade taxes.
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