US NFT Tax Guide 2025

IRS Treatment of NFTs

The IRS treats NFTs (Non-Fungible Tokens) as property, similar to cryptocurrency. This means NFT transactions trigger capital gains or losses, not ordinary income (with some exceptions).

Key IRS Guidance

While the IRS hasn't issued NFT-specific guidance, general cryptocurrency rules apply:

• Notice 2014-21: Virtual currency (including NFTs) is property
• Revenue Ruling 2023-14: Confirms property treatment
• Form 1040: "Digital assets" question includes NFTs

NFT Tax Events

Taxable Events

1. Selling an NFT: Capital gains/loss (sale price - cost basis)
2. Trading NFTs: Disposing of one NFT for another = two taxable events
3. Using crypto to buy NFT: Disposing of crypto = capital gains on the crypto
4. Receiving NFT airdrop: Ordinary income at fair market value
5. Earning creator royalties: Ordinary income

Non-Taxable Events

• Buying NFT with USD: No tax, establishes cost basis
• Minting NFT: No tax, cost basis = minting fees
• Transferring NFT between your wallets: No tax
• Holding/owning NFT: No tax

How to Calculate NFT Capital Gains

Basic Formula

Capital Gain/Loss = Sale Price - Cost Basis - Transaction Fees

Determining Cost Basis

Cost basis = what you paid to acquire the NFT:

• Purchased with USD: Purchase price + gas fees
• Purchased with ETH: USD value of ETH spent + gas fees
• Minted: Minting cost + gas fees
• Received as airdrop: FMV when received (reported as income)
• Gifted: Donor's cost basis (or FMV if lower)

Example 1: Simple Sale

• Buy: Purchase NFT for $500
• Sell: Sell for $1,200
• Gas fees: $50 (buy) + $30 (sell)
• Cost basis: $500 + $50 = $550
• Proceeds: $1,200 - $30 = $1,170
• Capital gain: $1,170 - $550 = $620

Example 2: Purchased with Crypto

• Jan 2024: Buy 1 ETH for $2,000
• March 2024: Use 1 ETH (now worth $3,000) to buy NFT
• Tax event 1: Dispose of ETH
  • Proceeds: $3,000
  • ETH cost basis: $2,000
  • ETH gain: $1,000
• NFT cost basis: $3,000 (FMV of ETH spent)

Minting NFTs

Tax Treatment for Creators

When you create and mint an NFT:

• Minting = not taxable
• Cost basis = minting cost + gas fees
• Selling = capital gains (for most creators)

Business vs Hobby

Casual creator (most people):

• Sales = capital gains on Schedule D
• Cost basis = minting costs
• Cannot deduct expenses beyond cost basis

Professional NFT artist/business:

• Sales = ordinary income on Schedule C
• Can deduct business expenses
• Subject to self-employment tax (15.3%)

Example: Minting and Selling

• Mint NFT: $100 (minting + gas) - No tax
• Cost basis: $100
• Sell NFT: $5,000
• Capital gain: $5,000 - $100 = $4,900

NFT Royalties

Tax Treatment

Creator royalties from secondary sales are ordinary income, not capital gains:

• Report on Schedule 1, Line 8z ("Other Income")
• Taxed at ordinary income rates (10-37%)
• Not subject to self-employment tax (for most)

Example

• Sell NFT on OpenSea with 10% creator royalty
• NFT resold 5 times for total volume of $50,000
• Royalties earned: $50,000 × 10% = $5,000 ordinary income
• Report on Schedule 1 as "NFT Creator Royalties"

NFT Airdrops

Tax Treatment

Receiving NFT airdrops = ordinary income at fair market value:

• Income = FMV when received
• Report on Schedule 1, Line 8z
• Cost basis = income amount (for future sale)

Determining FMV for Airdrops

Fair market value can be challenging:

• If actively traded: Floor price on OpenSea/Blur when received
• If no market: $0 (conservative) or comparable sales
• If illiquid: Reasonable estimate based on similar NFTs

Example

• Receive NFT airdrop on March 1, 2025
• Floor price = 0.5 ETH ($1,500)
• Ordinary income = $1,500
• Cost basis for future sale = $1,500
• If sell later for $2,000: Capital gain = $2,000 - $1,500 = $500

Trading NFTs

NFT-for-NFT Swaps

Trading one NFT for another = two taxable events:

1. Disposing of NFT #1: Capital gain/loss
2. Acquiring NFT #2: Cost basis = FMV of NFT #1

Example

• Own NFT #1: Cost basis $1,000
• Trade for NFT #2: FMV at trade = $3,000 each
• Tax on NFT #1 disposal:
  • Proceeds: $3,000 (FMV)
  • Cost basis: $1,000
  • Capital gain: $2,000
• NFT #2 cost basis: $3,000

Short-Term vs Long-Term Capital Gains

Holding Period

• Short-term: Held ≤ 12 months → ordinary income tax rates (10-37%)
• Long-term: Held > 12 months → preferential rates (0%, 15%, 20%)

Long-Term Capital Gains Rates (2025)

Strategy: Hold for Long-Term Treatment

Holding NFTs >12 months can significantly reduce tax:

• Short-term (6 months): $10,000 gain × 32% = $3,200 tax
• Long-term (13 months): $10,000 gain × 15% = $1,500 tax
• Savings: $1,700 (53% less tax!)

How to Report NFTs on Tax Return

Form 8949 & Schedule D (Capital Gains)

1. Form 8949: List each NFT sale
   • Description: "NFT - [Collection Name] #[ID]"
   • Date acquired
   • Date sold
   • Proceeds (sale price - fees)
   • Cost basis
   • Gain/loss
2. Schedule D: Summarize total capital gains/losses
3. Form 1040: Capital gains flow to main return

Schedule 1 (NFT Income)

Report NFT airdrops and royalties:

• Line 8z: "Other Income"
• Description: "NFT Airdrops" or "NFT Creator Royalties"
• Amount: Total USD value

Digital Assets Question

Form 1040 asks: "At any time during 2024, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset?"

• If you bought, sold, or received NFTs: Check "Yes"
• If you only held NFTs: Check "No"

NFT Loss Deductions

Capital Losses

NFT losses can offset gains and ordinary income:

• Offset capital gains: Unlimited offset
• Offset ordinary income: Up to $3,000/year ($1,500 if married filing separately)
• Carry forward: Excess losses carry forward indefinitely

Wash Sale Rule (2025 Update)

Important: As of 2025, wash sale rules do NOT apply to NFTs (they're not securities). However, proposed legislation may change this.

Current rule: You can sell an NFT at a loss and repurchase immediately without triggering wash sale.

Tax Loss Harvesting Strategy

• Sell NFTs at a loss before year-end
• Use losses to offset NFT gains or $3,000 of ordinary income
• Optionally repurchase NFTs immediately (no wash sale restriction)

Record Keeping Requirements

What to Track

• Purchase records:
  • Date and time of acquisition
  • Purchase price in USD
  • If purchased with crypto: amount and USD value of crypto
  • Transaction hash
  • Gas fees paid
• Sale records:
  • Date and time of sale
  • Sale price in USD
  • Marketplace fees
  • Gas fees paid
  • Transaction hash
• Creator royalties:
  • Date received
  • Amount in ETH and USD
  • Transaction details

How to Track

1. Crypto tax software: Koinly, CoinTracker, TokenTax support NFTs
2. Spreadsheet: Manual tracking (tedious but free)
3. Marketplace reports: OpenSea, Blur provide transaction history

Common Mistakes

1. Not reporting NFT sales: IRS receives data from exchanges
2. Using purchase price as proceeds: Must subtract marketplace/gas fees
3. Forgetting gas fees in cost basis: Gas fees increase cost basis
4. Not reporting airdrops as income: Airdrops = taxable income
5. Treating royalties as capital gains: Royalties = ordinary income
6. Not tracking crypto-for-NFT purchases: Two taxable events
7. Incorrect holding period: Start date = acquisition date, not minting date for buyers

Example Scenarios

Scenario 1: Flip NFT Quickly

• Buy: $1,000 (+ $50 gas)
• Sell after 3 months: $3,000 (- $80 fees - $40 gas)
• Cost basis: $1,050
• Proceeds: $2,880
• Short-term gain: $1,830
• Tax (24% bracket): $439

Scenario 2: Hold Long-Term

• Buy: $1,000
• Sell after 15 months: $3,000
• Long-term gain: $2,000
• Tax (15% LTCG rate): $300

Scenario 3: Creator with Royalties

• Mint NFT: $100 cost
• Sell initially: $10,000
  • Capital gain: $10,000 - $100 = $9,900
• Earn royalties from 10 resales: $5,000 total
  • Ordinary income: $5,000
• Total tax: LTCG on $9,900 + ordinary income on $5,000

FAQs

Are NFTs taxed differently than crypto?

No. Both are treated as property subject to capital gains tax. The mechanics are identical.

Do I pay taxes if I just hold NFTs?

No. Holding NFTs (even as they appreciate) is not taxable. Only selling/disposing triggers tax.

Can I deduct worthless NFTs?

Maybe. If an NFT becomes truly worthless, you may claim a capital loss. However, determining "worthless" is subjective. Conservative approach: sell for $1 to realize loss.

What if I gift an NFT?

Gifting NFTs is not taxable to you (unless gift tax applies over $18,000/year). Recipient gets your cost basis.

How do I value NFTs with no market?

Use comparable sales, floor prices of similar collections, or expert appraisal. Conservative approach: $0 if truly no market.

Do wash sale rules apply to NFTs?

No, not currently. NFTs aren't securities. You can sell at a loss and immediately repurchase.

Tools & Resources

Crypto Tax Software with NFT Support

• Koinly - Excellent NFT tracking
• CoinTracker - OpenSea integration
• TokenTax - NFT royalty tracking

IRS Resources

• IRS Crypto FAQs
• Notice 2014-21

Final Thoughts

NFT taxation follows standard property rules: capital gains on sales, ordinary income on airdrops/royalties. The key to compliance is meticulous record-keeping of purchase prices, dates, and gas fees. Crypto tax software significantly simplifies NFT tax reporting, especially for active traders with dozens or hundreds of transactions.

The long-term capital gains advantage makes holding NFTs >12 months attractive from a tax perspective. For NFT creators earning significant royalties, proper classification (hobby vs business) and expense tracking is crucial for minimizing tax liability.