NFT Artist Loses 300 ETH After Terra Collapse Taxes

Non-fungible token (NFT) artist Jonathan Mann, renowned for his “Song A Day” project, has turned his harrowing experience with crypto taxes into a musical narrative. In a new track shared on X, Mann recounts his journey of earning and subsequently losing $3 million from selling his entire back catalog as NFTs during the market crash associated with the Terra ecosystem collapse.

Mann's financial odyssey began on January 1, 2022, when he sold 3,700 songs at $800 each, amassing approximately $3 million in Ether (ETH). Initially thrilled but unprepared, Mann and his wife decided to hold onto the crypto, hoping for an increase in ETH prices. However, their lack of a strategic plan led to complications as ETH’s value declined in January 2022. The couple faced uncertainty about when and how much to sell, further complicated by the US Internal Revenue Service (IRS) demanding taxes on their earnings.

The IRS taxed Mann's NFT sales as income, based on the value of the ETH at the time of receipt, regardless of subsequent market fluctuations. This meant that even as the value of their $3 million in ETH decreased, their tax liability remained unchanged. To avoid selling their crypto at a loss, Mann and his wife took out a loan through the lending protocol Aave, using some of their ETH as collateral. Unfortunately, the market crash triggered by the Terra collapse led to a cascade of liquidations, including Mann’s loan, resulting in the loss of 300 ETH.

Facing potential liens on their home and risks to his wife’s retirement account, Mann spent months working with his accountant to determine their tax obligations, ultimately finding out they owed $1,095,171.79. In a desperate move, Mann turned to selling a rare Autoglyph NFT he had purchased earlier. Despite initial difficulties in finding a buyer, he eventually found a broker with a client willing to pay $1.1 million for the NFT, which he accepted to cover the IRS taxes. The sale of the Autoglyph NFT did not incur capital gains taxes due to the losses from the Aave loan.

Despite the financial turmoil, Mann continues his daily songwriting and NFT sales, hopeful of future earnings. His experience serves as a cautionary tale for others navigating the complexities of crypto taxes and market volatility. Mann's song not only highlights the financial challenges he faced but also underscores the importance of having a strategic plan when dealing with crypto assets. His story is a reminder that the crypto market, while promising, is also fraught with risks that can lead to significant financial losses if not managed properly.