NFT Tax Guide — Buying, Selling, and Creating

The IRS treats NFTs as property — similar to stocks or real estate. But there's a twist: NFTs may qualify as "collectibles," which means gains could be taxed at a higher rate than typical capital gains. Whether you're a buyer, seller, or creator, the tax rules are different for each role.

Estimate your gains with the Crypto Tax Calculator.

Tax Rules by Activity

Activity	Tax Treatment
Buying an NFT with crypto	Taxable sale of the crypto used
Selling an NFT for crypto or cash	Capital gain or loss
Trading NFT for NFT	Taxable exchange (gain/loss on both sides)
Creating and selling an NFT	Ordinary income (self-employment)
Receiving an NFT as a gift	No tax on receipt; inherits donor's basis
NFT airdrop	Ordinary income at FMV when received
Holding an NFT	Not taxable

Buying an NFT — Hidden Taxable Event

When you buy an NFT with ETH, you're selling ETH first. That ETH sale triggers a capital gain or loss.

Example:

You bought 5 ETH for $10,000 total (cost basis: $2,000 each)
ETH is now worth $3,500 each
You spend 2 ETH to buy an NFT

Step	Calculation
ETH cost basis (2 ETH)	$4,000
ETH fair market value (2 ETH)	$7,000
Capital gain on ETH	$3,000
NFT cost basis	$7,000

You owe tax on the $3,000 ETH gain — even though you didn't convert to cash. The NFT starts with a $7,000 cost basis.

Selling an NFT

When you sell an NFT, it's a straightforward capital gain/loss:

Gain = Sale price − Cost basis − Fees

Sale Scenario	NFT Cost Basis: $7,000	Result
Sell for $15,000	$15,000 − $7,000	$8,000 gain
Sell for $3,000	$3,000 − $7,000	$4,000 loss
Gift to friend	No taxable event	No gain/loss

The Collectibles Question — 28% Tax Rate

The IRS proposed guidance (Notice 2023-27) suggesting that certain NFTs may be taxed as collectibles — subject to a maximum 28% long-term capital gains rate instead of the normal 0/15/20%.

An NFT is likely a collectible if the underlying asset is one:

Digital art → collectible (like physical art)
Digital music → collectible (like vinyl records)
Gaming items → possibly collectible
Domain names → likely NOT a collectible
Real-world asset tokens → depends on the asset

Type	Long-Term Rate
Stocks, bonds	0%, 15%, or 20%
Collectibles (art NFTs)	Up to 28%
Real estate	0%, 15%, or 20% (+ 25% on depreciation)

If you're in the 24% bracket, collectible treatment actually doesn't hurt you (24% < 28%). But if you're in the 32%+ bracket, the 28% cap helps — your collectible gains are taxed at 28% instead of 32-37%.

NFT Creators — Self-Employment Income

If you create and sell NFTs, the income is treated as self-employment income, not capital gains:

Item	Tax Treatment
Primary sale revenue	Ordinary income
Royalties from secondary sales	Ordinary income
Self-employment tax	15.3% (Social Security + Medicare)
Deductible expenses	Software, equipment, gas fees, marketing

Example — Digital artist selling NFTs:

Income	Amount
NFT primary sales	$50,000
Royalties (5% on resales)	$8,000
Gross income	$58,000
Expenses (software, gas fees, equipment)	−$5,000
Net self-employment income	$53,000
Self-employment tax (15.3%)	$7,500
Income tax (estimated, 22% bracket)	$6,400

The self-employment tax hits hardest — it's on top of income tax.

NFT Losses

If your NFT drops to zero or you can't sell it:

You can claim a capital loss when you actually sell or dispose of the NFT
"Burning" an NFT (sending to a dead address) may count as a disposition at $0 value
If you paid $5,000 and burn it, you have a $5,000 capital loss
Capital losses offset capital gains, plus up to $3,000 of ordinary income per year

Warning: Simply not being able to sell an NFT doesn't create a loss. You must dispose of it — sell for any amount or burn it.

Record Keeping

For each NFT transaction, document:

Date acquired and date sold/disposed
Cost basis (price paid + gas fees)
Sale price (or FMV if traded/gifted)
Blockchain transaction hash
Screenshots of marketplace listings

Report NFT transactions on Form 8949 and Schedule D, same as other crypto assets. See how to report crypto on Form 8949 for the filing process.