How Are NFTs Taxed? IRS Rules for Investors and Creators

NFTs are taxed as property under IRS rules, which means how NFTs are taxed depends on what you did with the token: investors owe capital gains tax on sales and swaps (up to 20% for most tokens held over a year, or up to 28% if the NFT qualifies as a collectible), and creators owe ordinary income tax plus self-employment tax on what they mint and sell. Buying an NFT with cryptocurrency is itself a taxable disposal of that crypto. The framework is the one the IRS already uses for stocks and real estate, with a few digital-asset wrinkles worth knowing before you file.

How the IRS Classifies NFTs

The IRS treats all digital assets, including NFTs, as property rather than currency for federal tax purposes.¹ You measure gains and losses in U.S. dollars, and how long you held the NFT determines whether short-term or long-term rates apply.

Notice 2023-27 added a “look-through” test for collectibles. The IRS examines what underlying right or asset the NFT represents. If that underlying asset falls into one of the collectible categories in Internal Revenue Code Section 408(m) — artwork, rugs, antiques, metals, gems, stamps, coins, or alcoholic beverages — the NFT is treated as a collectible.² An NFT certifying ownership of a physical gemstone is a collectible; an NFT representing a purely digital image that doesn’t map to any of those physical categories is not.³

The distinction changes your long-term tax rate. Most purely digital NFTs (profile-picture projects, generative art, in-game items) currently fall outside the collectible categories, but the IRS has signaled further guidance may follow.

What You Owe When You Buy an NFT with Crypto

If you buy an NFT using Ethereum, Solana, or any other cryptocurrency, you’re not just acquiring a new asset. You’re disposing of the crypto you spent, and that disposal is itself taxable. You owe capital gains tax on the difference between what you originally paid for the crypto and its fair market value at the moment you used it to buy the NFT.¹

Say you bought 1 ETH for $1,500 last year and used it to purchase an NFT when ETH was worth $2,400. You have a $900 capital gain on the ETH disposal, regardless of what happens to the NFT afterward. If the crypto lost value, you have a capital loss instead. People routinely overlook this because they’re focused on the NFT, not the currency they spent. The IRS sees two transactions.

The NFT’s cost basis — the number you’ll use to calculate gain or loss when you eventually sell it — equals its fair market value in U.S. dollars at the time of purchase.¹ Gas fees paid during the purchase can generally be added to that cost basis, reducing your taxable gain later. Gas fees paid when you sell can be subtracted from your gross proceeds.

What You Owe When You Sell or Swap an NFT

When you sell an NFT, you owe tax on the difference between your cost basis and the sale price. The rate depends on how long you held it.

Held one year or less: gains are taxed at your ordinary income tax rate, which can reach 37%.⁴
Held more than one year: most NFTs qualify for long-term capital gains rates of 0%, 15%, or 20%, depending on your taxable income and filing status.⁴
Held more than one year and classified as a collectible: the maximum long-term rate is 28% instead of the usual 20% ceiling.⁵

High earners may also owe the 3.8% Net Investment Income Tax. It kicks in when your modified adjusted gross income exceeds $200,000 for single filers, $250,000 for married couples filing jointly, or $125,000 for married filing separately.⁶ A high-income investor selling a collectible NFT held for over a year could face a combined federal rate of 31.8%.

Offsetting Losses

If you sell an NFT at a loss, that loss offsets capital gains from other sales. If your total capital losses exceed your total capital gains for the year, you can deduct up to $3,000 of the excess against other income ($1,500 if married filing separately). Any remaining losses carry forward to future years.

Picking Which Units You Sold

If you bought the same type of digital asset at different times and prices, you can use the “specific identification” method to choose which units you’re deemed to be selling. This lets you pick higher-cost units first to minimize your gain. You need records showing the date, time, cost basis, and fair market value of each unit at acquisition and disposal.⁷ Without specific identification, the IRS defaults to first-in, first-out (FIFO), treating your earliest-acquired units as sold first.

NFT-for-NFT Swaps

Trading one NFT for another is taxable, even though no cash changes hands. The IRS treats it as selling the first NFT for its fair market value and buying the second. You owe capital gains tax on any increase in value since you acquired the NFT you gave up.¹

Some investors assume NFT swaps qualify as like-kind exchanges under Section 1031, deferring the tax. They don’t. Since the Tax Cuts and Jobs Act took effect in 2018, like-kind treatment has been limited to real property, and the IRS confirmed this applies to digital assets through Chief Counsel Advice 202124008.

Airdrops

When you receive an NFT through an airdrop, its fair market value at the time you gain control counts as ordinary income, taxed at your regular rate rather than capital gains rates. That same value becomes your cost basis if you later sell the airdropped token.

Taxes for NFT Creators

If you mint and sell your own NFTs, the proceeds aren’t capital gains. Revenue from primary sales of your own creations is ordinary income, taxed at your regular rate based on total earnings and filing status.¹ Royalties from secondary-market resales are also ordinary income in the year you receive them.

Creators operating with a profit motive — meaning they mint and sell regularly, not as a one-off experiment — are running a trade or business in the IRS’s view. That brings self-employment tax: a combined 15.3% covering Social Security (12.4%) and Medicare (2.9%) on your net earnings.⁸ The Social Security portion applies only up to the annual wage base ($176,100 for 2025; the 2026 figure will be announced separately).

Business classification lets you deduct legitimate expenses: platform fees, software subscriptions, equipment, marketing costs, and a portion of your home office if you meet the requirements. These reduce your taxable income before both income tax and self-employment tax are calculated. You report income and expenses on Schedule C (Form 1040).⁹

Hobby Versus Business

If the IRS classifies your activity as a hobby, you still owe income tax on the revenue but lose the ability to deduct expenses against it. The IRS looks at whether you keep businesslike records, how much time you invest, and whether you’ve earned a profit in recent years. Sporadic minting without a clear profit motive lands on the hobby side.

Estimated Tax Payments

Creators without an employer withholding taxes generally need to make quarterly estimated payments. You’ll owe a penalty if your total withholding and estimated payments fall short of the lesser of 90% of your current-year tax liability or 100% of last year’s tax (110% if your prior-year adjusted gross income exceeded $150,000).¹⁰ NFT income can be lumpy, and a single high-value sale can create a large estimated-payment obligation in the quarter it occurs.

Gifting and Donating NFTs

Transferring an NFT as a gift is not a taxable event for the giver, but the recipient inherits your cost basis (and potentially your holding period). For 2026, you can gift up to $19,000 per recipient per year without filing a gift tax return.¹¹ Gifts above that threshold require filing Form 709 but usually don’t result in actual gift tax until you exceed the lifetime exemption.

Donating an NFT to a qualified charity can generate a deduction, and the paperwork gets heavier as the claimed value rises. Donations valued at more than $5,000 require a qualified appraisal by a credentialed appraiser, and you must attach Form 8283 to your return.¹² For donations claimed at more than $500,000, the full appraisal must be attached. Given how volatile NFT valuations can be, the appraisal is where most donation claims face scrutiny.

Wash Sales and Loss Harvesting

Under current law, the wash sale rule — which prevents stock and securities traders from claiming a loss when they buy back the same asset within 30 days — does not apply to NFTs or other digital assets. The IRS classifies digital assets as property, not securities, so Section 1091 doesn’t reach them. You can sell an NFT at a loss, buy it back the next day, and still claim the loss.

Congress has taken notice. Multiple bills since 2021 have proposed extending wash sale rules to digital assets, though none had passed both chambers as of early 2026. If you harvest losses, watch legislative developments; the rules could change, potentially mid-year, with retroactive effect.

Reporting NFT Transactions on Your Return

Every Form 1040 includes a yes-or-no question asking whether you received, sold, exchanged, or otherwise disposed of digital assets during the tax year. You must check “Yes” if you sold an NFT, swapped one NFT for another, used an NFT to pay for goods or services, gifted or donated an NFT, or received an NFT as payment or an airdrop.¹³ Simply holding an NFT in a wallet or buying one with U.S. dollars does not require a “Yes” answer.

Forms for Investors

Each sale or exchange goes on Form 8949, where you list the acquisition date, disposal date, proceeds, cost basis, and resulting gain or loss. Digital asset transactions use reporting boxes G through L, not the boxes reserved for traditional securities. Totals from Form 8949 flow onto Schedule D, which calculates your net capital gain or loss for the year.¹⁴

Forms for Creators

If you’re running an NFT creation business, report income and deductible expenses on Schedule C. Self-employment tax is calculated on Schedule SE based on your net profit.⁹ Creators who also buy and sell NFTs as investments need both Schedule C (for creation income) and Form 8949/Schedule D (for investment gains and losses).

Form 1099-DA and Broker Reporting

Starting with transactions on or after January 1, 2025, custodial digital asset platforms — including those that handle NFT sales — must report gross proceeds to both you and the IRS on the new Form 1099-DA. Basis reporting on those forms begins for transactions on or after January 1, 2026.¹⁵ Decentralized platforms that never take custody are currently excluded, so if you trade there, the reporting burden falls entirely on you.¹⁶

Recordkeeping

The IRS requires you to keep records supporting every item of income, deduction, or credit on your return until the period of limitations expires, generally three years from the date you filed.¹⁷ For NFTs, save:

Transaction records: wallet addresses, transaction hashes, timestamps, and the fair market value in U.S. dollars at the time of each transaction
Cost basis documentation: what you paid for each NFT (or the crypto used to buy it), including gas fees
Disposal records: sale price, date, platform used, and any fees deducted from proceeds

Three years is the minimum. If you substantially understate income (by more than 25%), the IRS has six years to assess additional tax. Keeping digital-asset records for at least six years is the safer approach, especially given how difficult it can be to reconstruct blockchain transaction histories years after the fact.

1
Internal Revenue Service. Digital Assets
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Internal Revenue Service. Notice 2023-27
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Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
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Internal Revenue Service. Topic No. 409, Capital Gains and Losses
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Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
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Internal Revenue Service. Topic No. 559, Net Investment Income Tax
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Internal Revenue Service. Frequently Asked Questions on Virtual Currency Transactions
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Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
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Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)
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Internal Revenue Service. 2026 Form 1040-ES (NR) Instructions
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Internal Revenue Service. What’s New — Estate and Gift Tax
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Internal Revenue Service. Publication 561, Determining the Value of Donated Property
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Internal Revenue Service. Determine How to Answer the Digital Asset Question
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Internal Revenue Service. Instructions for Form 8949 (2025)
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Internal Revenue Service. Final Regulations and Related IRS Guidance for Reporting by Brokers on Sales and Exchanges of Digital Assets
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Internal Revenue Service. Frequently Asked Questions About Broker Reporting
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Internal Revenue Service. Topic No. 305, Recordkeeping