By Juliette Yuan. March 29th, 2021. New York.
March 24th, 2021, Bank of America Private Bank Art Services hosted an engaging panel discussion concerning the spring 2021 art market trends for collectors. The panel provided "an insider's view of the major macro trends that would drive the art market in 2021 and key takeaways to assist art collectors to navigate swiftly through the current tides and forecasted trends." (Art Market Update: Spring 2021, Bank of America, Private Bank, Art Services). Topics included:
2020 art market and auction update
2021 trends and innovative business transactions
Timely considerations for collectors
A comprehensive report on the art market moves in "an unprecedented period of transition and innovation" was published on the Bank of America's website following the panel. The report pointed out the thorny issues that the current NFT craze is forcing art, law, and tax advisors to confront: "While NFT art may be a fad, the Christie's sale signals that the secondary market for intangible assets has now arrived. The sale leaves many open questions about long-term market implications. However, for the moment, the status of owning digitally native assets for young tech wealth can be more significant than owning a Picasso (and now almost as expensive)."
Source: Bank of America Art Services, January 2021
What do Bank of America's "open questions about longer-term market implications" include?
For the year 2021, the biggest headache that art advisors, attorneys, and accountants confront is the taxation of cryptocurrencies and NFTs. I found myself busy absorbing and digesting new information and knowledge about cryptocurrencies and NFTs daily. "Despite the challenges, the mainstream emergence of crypto and digital assets isn't slowing down. Much remains unknown. Clients - and the IRS - will have questions. Advisors will be obliged to provide the best advice and familiarize themselves with the answers." (The Crypto tax man cometh, by David H. Lenok, March 26th, 2021, in Wealth Management, Wealth Planning - High Net Worth)
Here is what I learned from my recent readings. It seems that how to tax cryptocurrencies and NFT transactions can depend on the following factors: where the NFTs are located (more precisely, where the blockchain server is located), the number of transactions the artwork is paid on a blockchain platform, whether the collector reveals his/her/their authentic identity or remains anonymous at the moment of payment, and the challenges caused by the cryptos on the wealth planning techniques (cryptocurrency is self-sovereign by design, which is so far not congruent with the traditional mentor of generational wealth planning). And these are only a few issues among many that I discovered in my research. Legal interpretation of the tax implications of digital wallets is a decisive factor as well. Art law experts Thomas Danziger and Diana Wierbicki mentioned in their recent conversations with Artnet that the IRS and New York State could very well revisit the NFT taxation issue because of the unprecedented amount of money involved in the markets lately.
Explore more the latest updates on legal regulations and taxation policies about art collecting especially cryptocurrencies and NFTs, please read the following articles we selected for you:
The crypto tax man cometh
By David H. Lenok
March 26th, 2021
So you just bought an NFT. Here's what that may mean for your taxes
By Eileen Kinsella
March 24th, 2021
What advisors need to know about NFTs
By Samuel Steinberger
March 19th, 2021
And, with an article that is beneficial for all non-NFT art collectors:
What art collectors need to know about sales and import taxes
By Jamie Anderson
February 11th, 2021
A more extensive Q&A on virtual currency transactions can be found here on the IRS website.