Non-fungible tokens or NFTs have changed how digital ownership works, but they’ve also introduced new tax responsibilities that many investors overlook. If you’ve bought, sold, or earned them, the IRS expects you to report these activities correctly. Failing to do so could lead to audits, penalties, or unnecessary legal risks.
Unlike other assets, NFTs can trigger different types of taxes depending on how you acquire or use them. Whether you’re an artist minting digital work, a trader flipping high-value collectibles, or someone receiving them through airdrops, each situation has tax consequences.
This guide breaks down the IRS tax rules for NFTs in a clear and structured way. You’ll learn how digital arts are classified, what transactions create taxable events, and how to report them accurately. Let’s start with how the IRS views NFTs from a tax perspective.
How the IRS Views NFTs for Tax Purposes?
Before diving into specific NFT transactions, it’s important to understand how the IRS classifies NFTs. This classification determines whether your activity is taxed as capital gains or ordinary income.
Read More: Crypto Tax USA Guide
NFTs as Property
As per the crypto tax rule in America, the IRS currently treats most digital assets, including NFTs, as property, not currency. This means buying, selling, or exchanging NFTs can trigger capital gains tax. If you dispose of an NFT for more than your cost basis, you have a taxable gain. If you dispose of it for less, you may have a capital loss, which can offset other gains.
This treatment is similar to how other cryptocurrencies are taxed, but NFTs present additional complications due to their non-fungible and often illiquid nature. Each NFT is unique, making it harder to determine its fair market value (FMV) at the time of the transaction.
NFTs as Collectibles
In certain cases, NFTs may be taxed as collectibles, which come with a higher tax rate. The IRS defines collectibles as items like artwork, antiques, or rare coins. If your NFT represents ownership of a collectible (e.g., digital art, trading cards), it may fall under this category. Collectibles held for more than a year can be taxed at a maximum of 28%, compared to the usual 20% cap for long-term capital gains.
However, there’s still some uncertainty in IRS guidance on this point. The classification depends on what the NFT represents and how it’s used. For now, a conservative approach is to assume collectible treatment if the NFT is tied to traditional collectible assets.
Read More: How To Buy NFTs?
Capital Gains Tax on NFTs
Capital gains tax applies when you dispose of an NFT for more than you paid for it. Capital gains tax is triggered any time you dispose of an NFT. These disposal events include:
- Selling an NFT for cryptocurrency or fiat
- Swapping one NFT for another
- Using cryptocurrency to buy an NFT
Even though you’re not always cashing out to USD, the IRS still sees these events as taxable. You’ll be taxed on the difference between the NFT’s cost basis (what you paid for it) and its fair market value at the time of disposal.
Example
- You bought an NFT for $1,000 worth of ETH.
- You later sell it for $1,800 worth of ETH.
- Your capital gain is $800, and you’ll need to report that to the IRS.
Short-Term Capital Gains Tax On NFTs
If you held the NFT for one year or less, your profit is taxed at your ordinary income tax rate.
Long-Term Capital Gains Tax on NFTs
If you held the NFT for more than one year, your profit is taxed at a different rate. The long-term capital gains tax rates for FY 2024-25 are:
Tax Rate | Single | Married filing jointly | Married filing separately | Head of Household |
15% | $47,026 to $518,900 | $94,051 to $583,750 | $47,026 to $291,850 | $63,001 to $551,350 |
20% | $518,901+ | $583,751+ | $291,851+ | $551,351+ |
Read More: How To Avoid Capital Gains Tax In The USA
Ordinary Income from NFTs
Not all NFT transactions are capital gains events. In some cases, you may earn NFTs or cryptocurrency through activities that the IRS classifies as ordinary income. The IRS considers NFTs as ordinary income when you receive them in exchange for providing a service, winning a reward, or through certain other distributions. The fair market value of the asset at the time of receipt determines your income.
NFTs may be treated as ordinary income if you receive them in the following ways:
- Payment for freelance work or services
- NFT airdrops or promotional giveaways
- Rewards for staking NFTs or holding specific NFT collections
- Participation in play-to-earn (P2E) gaming platforms
Example
Let’s say you’re paid in NFTs for freelance design work. If you receive an NFT valued at $1,000 on the day of receipt, you must report $1,000 as ordinary income. This amount becomes part of your gross income and is taxed based on your bracket.
If you later sell that NFT, you’ll also need to calculate capital gains or losses based on the difference between the sale price and the FMV at the time you received it.
Income Tax Rate For FY 2024-25
The ordinary tax rates on cryptocurrency and NFTs for FY 2024-25 are:
Tax Rate | Single | Married filing jointly | Married filing separately | Head of Household |
|---|---|---|---|---|
10% | $0 to $11,600 | $0 to $23,200 | $0 to $11,600 | $0 to $16,550 |
12% | $11,600 to $47,150 | $23,201 to $94,300 | $11,601 to $47,150 | $16,551 to $63,100 |
22% | $47,150 to $100,525 | $94,301 to $201,050 | $47,151 to $100,525 | $63,101 to $100,500 |
24% | $100,525 to $191,950 | $201,051 to $383,900 | $100,526 to $191,950 | $100,501 to $191,950 |
32% | $191,950 to $243,725 | $383,901 to $487,450 | $191,951 to $243,725 | $191,951 to $243,700 |
35% | $243,725 to $609,350 | $487,451 to $731,200 | $243,726 to $365,600 | $243,701 to $609,350 |
37% | $609,350+ | $731,201+ | $365,601+ | $609,350+ |
NFT Transactions and Their Tax Treatments
NFT transactions can trigger different tax outcomes depending on how and why you’re using them. In this section, we explain how each transaction type is taxed and what you need to report.
Buying NFTs with Cryptocurrency
When you buy an NFT using crypto (like ETH or SOL), it is treated as a crypto-to-crypto trade. The IRS considers this a disposal of the cryptocurrency, which makes it a taxable event.
You must calculate the capital gain or loss on the crypto you used to buy the NFT. This is based on the difference between your original purchase price (cost basis) and its fair market value at the time of the NFT purchase.
Selling NFTs for Crypto or Fiat
Selling an NFT, whether for fiat or crypto, is the disposal of a digital asset. The IRS treats this as a capital gains event. You need to calculate the difference between your original cost basis and the amount you sold the NFT for.
This includes NFTs received as income. If you earned the NFT, its fair market value at receipt becomes your cost basis.
Swapping One NFT for Another
Swapping one NFT for another is also a taxable event. The IRS sees this as disposing of one asset and acquiring a new one. You’ll need to determine the fair market value of the NFT you gave up to calculate your gain or loss.
Determining fair value can be challenging due to the uniqueness of NFTs. Common valuation methods include using the floor price or the most recent sale price in that collection.
Minting NFTs
Minting an NFT typically does not trigger a tax event. You’re creating a new asset rather than disposing of an existing one. However, if you later sell or trade the NFT, that transaction will be subject to capital gains tax.
You can include any minting fees paid in crypto as part of your cost basis when you eventually dispose of the NFT.
Gifting NFTs
Gifting an NFT is not a taxable event for the giver or recipient, as long as the value stays within IRS gift tax limits ($17,000 per recipient for 2024). The recipient takes on the donor’s cost basis and holding period.
However, if the gift exceeds the annual threshold, the giver may need to file Form 709.
Receiving NFTs as Airdrops or Rewards
If you receive an NFT as part of an airdrop, promotional campaign, or as a reward for holding another NFT, the IRS treats this as ordinary income. You must report the fair market value of the NFT at the time of receipt as income.
Later, when you sell or swap the NFT, you’ll calculate capital gains based on the FMV at the time you originally received it.
Using NFTs as Loan Collateral in DeFi
NFTs are sometimes used as collateral in decentralized lending protocols. If you provide an NFT as collateral and receive another token in exchange, the IRS may treat it as a crypto-to-crypto trade, triggering capital gains tax.
If the collateral is liquidated (i.e., taken by the lender), this is also considered a disposal and must be reported.
NFTs in Liquidity Pools
Some DeFi protocols issue NFTs to represent a user’s share in a liquidity pool. Swapping your crypto for such an NFT and vice versa may be considered a crypto-to-crypto trade.
If the protocol distributes tokens (like rewards or interest) while you hold the NFT, the IRS may view those earnings as income and tax them accordingly.
Gas Fees on NFT Transactions
Gas fees paid during NFT purchases, sales, or swaps can be added to your cost basis. This reduces the total capital gains when you dispose of the NFT.
However, gas fees from wallet transfers or self-moves are generally not deductible. Keep records of each transaction and fee to support your tax calculations.
Read More: 10 Most Expensive NFTs
How to Calculate NFT Taxes?
NFT taxes are calculated based on how you received and used the asset. If you sell or trade an NFT, you’ll need to calculate capital gains. If you received it as income, you’ll need to determine its FMV at the time of receipt. Here’s how to calculate both.
Calculating Capital Gains Tax on NFTs
You calculate capital gains on NFTs when you sell, swap, or trade them. To do this, subtract what you paid (your cost basis) from what you received (the sale price in USD).
Capital Gain or Loss = Sale Price – Cost Basis |
Calculating Ordinary Income Tax on NFTs
If you receive an NFT as a reward, payment, or airdrop, its value at the time of receipt is treated as income. To calculate, use the FMV of the NFT in USD on the date it was received.
Ordinary Income = Fair Market Value at Receipt |
How to Report NFT Taxes?
Reporting NFT taxes involves calculating your taxable events and entering the correct amounts in your annual tax return. The IRS treats NFTs as property, meaning both capital gains and income need to be properly recorded. The reporting process varies depending on whether your NFT activity resulted in a capital gain or ordinary income.
Reporting Capital Gains from NFTs
If you’ve sold, traded, or swapped NFTs, you’ll need to calculate your capital gains or losses for each transaction.
- Start by calculating the gain or loss for each NFT transaction in USD.
- Report each of these transactions on Form 8949, listing the date acquired, date sold, cost basis, and sale amount.
- Summarize your total gains or losses from Form 8949 on Schedule D, which consolidates your capital activity for the year.
This applies whether the gain was short-term or long-term, depending on how long you held the NFT.
If you later sell that NFT, you’ll also need to calculate capital gains or losses based on the difference between the sale price and the FMV at the time you received it.
Reporting Ordinary Income from NFTs
If you received NFTs as compensation, rewards, or through airdrops, these are taxed as ordinary income.
- Use Schedule 1 (Form 1040) to report general income if you are not self-employed.
- Use Schedule C if the NFT income was earned through freelance work, business, or self-employment.
Make sure to report the fair market value of the NFT in USD at the time it was received. This value also becomes your cost basis if you later sell the NFT.
Read More: Crypto Tax Evasion In The USA
How KoinX Helps You Simplify NFT Tax Reporting?
NFT taxes can be complex, but managing them doesn’t have to be. If you’re trading NFTs or earning from them, KoinX helps simplify the process so you can focus on your investments, not spreadsheets.
Consolidate All Your NFT Transactions
It lets you sync wallets, marketplaces, and blockchains where your NFTs are stored or traded. With just a few clicks, your complete NFT transaction history is imported into one dashboard. This eliminates the hassle of gathering data manually from multiple platforms.
Accurately Track Cost Basis and FMV
The platform applies industry-accepted methods to estimate fair market value for your NFTs, whether you bought, sold, or swapped them. It also calculates your cost basis by including purchase price, gas fees, and other related costs, ensuring your gain or loss calculations are accurate.
Tag and Categorize NFT Events
From minting and swapping to gifting and airdrops, it helps you label each NFT event appropriately. This tagging feature helps you separate taxable events from non-taxable ones and apply the right tax treatment, capital gains, or income.
Generate Audit-Ready Tax Reports
Once your data is synced and categorized, KoinX creates detailed tax reports that reflect your NFT activities. These reports are designed to help you or your tax professional file with confidence. You can even export reports tailored for tax apps like TurboTax and TaxAct.
Stay Compliant With IRS Expectations
KoinX stays up to date with evolving IRS guidelines. That means your reporting remains compliant even as rules change. Whether you’re a collector, creator, or active trader, KoinX helps you stay ahead of tax season, without missing any detail.
Ready to take control of your NFT taxes? Start using KoinX today to streamline your reporting and minimize tax-time stress.
Conclusion
NFT taxes in the US are evolving, and understanding your obligations is key to staying compliant. Whether you’re buying, selling, earning, or minting NFTs, every action has potential tax implications. Properly tracking and categorizing each transaction ensures you don’t overpay—or worse, miss a critical IRS requirement.
With tax season around the corner, it’s time to simplify your NFT tax reporting. Let KoinX handle the complexity—track, calculate, and stay IRS-ready with ease. Get started today and take control of your NFT taxes.
Frequently Asked Questions
Are Gas Fees For NFT Transactions Tax-Deductible?
Yes, gas fees related to taxable NFT events like purchases or sales can be added to your cost basis or deducted from proceeds. This reduces your capital gains. However, gas fees for self-transfers or failed transactions are not tax-deductible under current IRS guidelines.
Do I Pay Tax When Transferring An NFT Between My Wallets?
No, transferring an NFT between wallets you own is not a taxable event. Since there’s no sale, trade, or income generated, it doesn’t create any tax liability. Still, it’s important to keep accurate records of these transfers for tracking purposes and validating ownership if needed.
How Are Fractional NFTs Taxed In The USA?
Fractional NFTs are taxed similarly to other digital assets. When you buy or sell fractional shares, capital gains tax applies based on the difference between your purchase price and sale price. If you earn fractional NFTs as income, their value at receipt is taxed as ordinary income.
Are NFT Earnings From Gaming (P2E) Taxed?
Yes, Play-to-Earn (P2E) rewards from NFT-based games are treated as ordinary income. The fair market value of any NFTs or tokens received must be reported as income when received. Selling or trading those assets later may trigger additional capital gains tax based on market value.
