Axie Infinity Taxes Guide

Axie Infinity is big fun, but also potentially comes with a big tax bill. Learn about Axie Infinity taxes, including AXS and SLP tokens, and Axie Infinity NFT taxes.

What is Axie Infinity?

Axie Infinity is a crypto game that, despite some turbulence, remains relatively popular.

The game itself is a digital pet community in which you buy creatures, or ‘Axies’. You take your Axies to battle, explore, and breed with other Axies. The game is developed by Sky Mavis and has an aesthetic clearly inspired by the likes of Pokémon.

How do you make money on Axie Infinity?

There are two main ways to make money on Axle Infinity:

Breeding and selling Axies

One large part of Axie Infinity is breeding. This involves taking any two mature magical creatures and breeding them to create offspring. The baby Axie will inherit all the features from both its parents. If you manage to breed an Axie with rare, unique, or superior characteristics, you could sell it in the marketplace.

Selling land

The Axie Infinity world is built on a place called Lunacia (the mainland). Different parts of this virtual mainland are worth more due to their proximity to advantageous features. This is like in real life, kind of, where certain parts of land are more valuable because of their location.

Axie Infinity taxes

Because your Axie Infinity tokens and NFTs are crypto assets, they come with tax implications when you have profits.

Let’s go through some of the taxable events you’ll find in the Axie Infinity game.

Selling AXS or SLP on an Exchange

AXS (Axie Infinity Shards) and SLP (smooth love potion) are cryptocurrencies (ERC-20) that players receive when playing the game. They are primarily used for breeding fees, but they can also be sold on exchanges.

It is a capital gain to make a profit by selling or otherwise disposing of AXS or SLP when its value is higher than when you received it. These earnings should be reported on Form 8949.

Selling Axies or Axie Infinity land

Just like selling another valuable asset, if you make a profit from selling Axies or land, then you have made a capital gain. You must report the increase between the Axies' cost basis (the amount you bought for, including gas and translation fees) and its selling price (the amount you sold it for).

We’ll look at breeding Axies in a second.

For land, this is the same. You take the amount you bought it for (including any relevant transaction fees) and subtract it from the amount you sold it for. This is your realized capital gain.

Purchasing an Axie

As explained before, before starting the game, a player must buy 3 Axie NFTs on the ETH blockchain. This is crypto to crypto trade and is taxable in most countries.

Breeding Axies

A player must spend AXS and SLP to breed an Axie. This spend is taxable, which means you must pay capital gains taxes on any increase in value in the AXS and SLP from the time you earned it to the time you spent it. This is similar to the example we gave when purchasing an Axie.

However, these breeding costs could be considered transaction fees. If so, you may be able to deduct some or all of these expenses.

How Koinly helps with crypto taxes

Koinly is a crypto tax tool that calculates your crypto taxes for you, meaning you don’t have to go through the hassle of doing it yourself. Essentially, Koinly does all the boring tasks that would cost you hours and hours sitting at a computer.

As a quick breakdown, here’s a short summary of what Koinly does.

• Converts your transactions into your country’s currency at fair market value

• Deciphers what activities are taxable and which are not

• Allows you to submit a clean and accurate report to your tax office