With the adoption of digital assets such as non-fungible tokens, or NFTs, questions around estate planning will become more prevalent. At the date of death, many assets “step-up” in basis, effectively wiping away any unrealized gains.
NFTs are treated as either property or as a collectible depending on the type of asset it is. Both property and real estate are eligible for a step-up in basis at the date of death for the beneficiary.
That means that if you bought your Bored Ape Yacht Club NFT for the low price of $50,000, and it’s now worth $500,000, the basis resets at $500,000 when you pass away (or whatever the equivalent is in ETH at the time should you prefer to value things in ether).
One exception to this: If you happen to own your NFT inside of an individual retirement account (most likely in a “self-directed IRA”), such as an IRA or Roth IRA, this step-up in basis would not occur.
Additional reading: Here a blog post that does a good job of giving examples of what NFTs could be considered property and real estate.
Note: We are not CPAs. Please consult a tax professional if you have any tax questions specific to your own personal situation.