NFTs created a wave of new crypto millionaires — and an equally large wave of people who owe significant taxes and aren't sure how to handle them. Whether you bought a JPEG that went up 10x, created a collection and received royalties, or just traded NFTs a few times, you almost certainly have tax obligations.
The IRS hasn't issued NFT-specific guidance yet, but the general crypto tax framework applies. Here's how it breaks down for collectors, traders, and creators.
⚠️ Possible Collectible Tax Rate
The IRS may classify certain NFTs as collectibles, subject to a maximum 28% long-term capital gains rate instead of the usual 20%. This applies to physical art, antiques, coins, and some digital equivalents. The IRS hasn't finalized guidance, but it's a real risk for art NFTs.
For NFT Buyers and Collectors
Buying an NFT
Purchasing an NFT with cryptocurrency is a two-step taxable event. You're disposing of the crypto (a taxable sale), and then you're acquiring an NFT at its purchase price.
Example: Buying an NFT with ETH
- You have 2 ETH you bought for $1,500 each ($3,000 total)
- You buy an NFT for 2 ETH when ETH = $2,000 each
- You just "sold" 2 ETH for $4,000
- Capital gain on the ETH: $4,000 − $3,000 = $1,000
- Your cost basis in the NFT: $4,000 (what you paid)
Gas fees to complete the transaction can be added to the NFT's cost basis or treated as a separate sale of ETH (whichever is more beneficial).
Selling an NFT
Selling an NFT is a capital gains event. Your gain or loss is the difference between what you sold it for and your original cost basis (what you paid including fees).
- Held 1 year or less: short-term capital gains (ordinary income rates, 10–37%)
- Held over 1 year: long-term capital gains (0–20%, or potentially 28% if classified as a collectible)
Trading One NFT for Another
Just like trading BTC for ETH, swapping NFTs is a taxable event for the NFT you're giving away. You recognize a gain or loss on the disposed NFT, and your cost basis in the new NFT is its fair market value at the time of the trade.
For NFT Creators
Minting and Initial Sales
When you create and sell an NFT, the proceeds are ordinary income — treated like selling any product or service. This means:
- Subject to ordinary income tax rates (up to 37%)
- Also subject to self-employment tax (15.3%) if you're doing this as a business
- Gas fees for minting may be deductible as a business expense
Royalties
If your NFT pays you a percentage of secondary sales as royalties, those payments are ordinary income when received. Report on Schedule C if you're operating as a business, or Schedule 1 if it's more casual.
Self-Employment Tax Surprise
Many NFT creators are shocked to discover they owe self-employment tax on top of income tax. If you regularly create and sell NFTs as a business activity, you'll owe 15.3% SE tax on the net profit, in addition to federal income taxes. Quarterly estimated payments may be required.
The Collectible Question: Does the 28% Rate Apply?
Under tax law, "collectibles" — which include art, antiques, gems, coins, and stamps — are subject to a maximum long-term capital gains rate of 28% instead of the usual 20%.
In early 2023, the IRS released Notice 2023-27 indicating they are considering whether certain NFTs qualify as collectibles. While they haven't issued final guidance, the conservative approach is to consider that art NFTs or similar digital collectibles might be subject to the 28% rate.
Profile picture collections, gaming items, and utility NFTs are in a grayer area. NFTs that are essentially just investment vehicles with no artistic or collectible characteristic are less likely to be classified as collectibles.
Receiving NFTs as Gifts or Airdrops
If you receive an NFT for free — whether as a gift, airdrop, or promotional item — it's taxable as ordinary income at the fair market value when you receive control of it. Your cost basis becomes that fair market value.
The challenge: many NFTs have little or no market price when first distributed. For NFTs with essentially zero fair market value at receipt, conservative practice is to report $0 in income, with a $0 cost basis to be used when you eventually sell.
Record-Keeping for NFTs
NFT tax record-keeping should include:
- Date of each purchase, sale, or trade
- Price paid (in USD and crypto value)
- Price received (in USD at time of sale)
- Gas fees paid for each transaction
- Platform used (OpenSea, Blur, etc.)
- NFT name, contract address, token ID
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Conclusion
NFT taxes follow the general crypto framework with a few important wrinkles: buying an NFT with crypto triggers a taxable event on the crypto, selling triggers capital gains, creating and selling is ordinary income, and the 28% collectible rate may apply to art NFTs.
The NFT space moves fast and the IRS is still catching up. Keep complete records, track every transaction, and consider working with a tax professional familiar with digital assets if your NFT activity is significant.
This article is for informational purposes only. NFT tax treatment is evolving; consult a qualified tax professional for personalized advice.