Musician's $3 Million NFT Fortune Vanishes Amid Crypto Crash and Tax Woes

Musician Jonathan Mann, known for his "Song A Day" project, faced a significant financial setback after selling his music catalog as NFTs. Despite earning $3 million, a combination of the cryptocurrency market crash and substantial tax obligations led to the loss of his earnings and a near-catastrophic financial situation.

A Crypto Tax Nightmare Unfolds

Jonathan Mann's ordeal began on January 1, 2022, when he successfully sold 3,700 songs as NFTs, each priced at $800, accumulating approximately $3 million in Ethereum (ETH). Despite this initial success, Mann and his wife opted to hold onto the ETH, hoping for further price appreciation, a decision they later regretted due to a lack of a clear strategy.

The Downfall: Market Crash and Tax Burden

• ETH Value Decline: Shortly after the sales, ETH's value began to decline in January 2022.

• Taxation as Income: The IRS considers NFT earnings as income, meaning taxes are based on the ETH's value at the time of receipt, irrespective of subsequent market fluctuations. This left Mann with a tax bill of $1.1 million, even as his crypto holdings depreciated.

• Terra Collapse Impact: To avoid selling their ETH at a loss, Mann took out a loan using ETH as collateral. However, the Terra ecosystem collapse triggered a market-wide cascade of liquidations, including Mann's loan, resulting in the loss of 300 ETH.

A Rare NFT to the Rescue

Facing potential liens on his home and risks to his wife's retirement savings, Mann's last resort was to sell a rare Autoglyph NFT he had acquired years prior. After an initial struggle to find a buyer, a broker connected him with a client who offered $1.1 million for the NFT. This sale allowed Mann to cover his substantial tax debt.

Lessons Learned and Moving Forward

Despite the traumatic experience, Mann continues to create and sell daily songs as NFTs. The sale of the Autoglyph NFT, while bittersweet, allowed him to settle his tax obligations without incurring capital gains taxes due to the earlier losses. His story serves as a cautionary tale about the volatility of the crypto market and the complexities of cryptocurrency taxation.

Sources

• NFT artist relives ‘crypto tax nightmare’ in new song, Cointelegraph.