Non-fungible tokens (NFTs), while trendy for a time as speculative investments, quickly oversaturated their market and — coupled with overall declines in the cryptocurrency market — have markedly decreased in value. Indeed, many NFTs are now worthless or near-worthless, leaving their investors empty-handed.
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That said, NFTs can still serve a rather surprising utility for clever investors. Per Forte Innovations, NFT investors can actually turn around their worthless NFTs and use them to cut their tax bills. This process is known as tax-loss harvesting.
Through tax-loss harvesting, an investor identifies any investments in their portfolio that have dropped in value (in this case, NFTs). The investor then sells off the NFTs at a loss. While doing so does create a realized capital loss, that loss can offset the investor’s overall annual gains and income, thus lowering their crypto tax bill come tax season.
“You can dispose of your worthless NFT by selling, trading, gifting or burning it,” noted Ronny Ko of Forte. “Remember that those actions will create a taxable event.”
Essentially, through the tax-loss harvesting of the NFTs you’ve invested in at a loss, you are able to use those very same losses to offset the capital gains of your other, more successful, investments when it’s tax time. Even further, you can utilize any profits you do make from the divestment of the NFTs and reinvest in something similar for your overall portfolio, thereby keeping you active in the market.
Or course, for those who aren’t experienced at the tax-loss harvesting investment strategy, it is always wise to consult with an investment expert and/or your accountant before making such a move, in order to protect both your investment portfolio as well as your wallet when tax time comes around.
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This article originally appeared on GOBankingRates.com: The Shocking Way To Lower Your Taxes by Investing in Crypto
