How Are NFTs Taxed? A Plain-English Guide for Buyers, Sellers and Creators

Last updated: October 19, 2026 · Reviewed by the CryptoTaxAI editorial team · 10 min read

Buying an NFT feels like buying a picture, a game item or a membership pass. For tax purposes the IRS treats it very differently: an NFT is a digital asset, and most of the same property rules that apply to bitcoin and ether apply to it as well — with one extra twist for collectibles. That means a tax bill can arise when you buy, when you sell, when you trade, and, if you created the NFT, when you first sell it. This guide walks through each step with worked examples, so you can keep the right records before a marketplace form — or the absence of one — catches you out.

The Short Answer

The IRS treats NFTs as property and as digital assets. Buying an NFT with dollars is not itself a taxable event, but buying one with cryptocurrency is: you are treated as selling that cryptocurrency, so you realize a gain or loss on the coins you spent. Selling or trading an NFT produces a capital gain or loss equal to what you received minus your cost basis. Creating and selling your own NFT, and receiving creator royalties on later sales, generally produces ordinary income instead. If the asset an NFT points to is a collectible — art, antiques, gems, certain metals, and similar items under section 408(m) — long-term gains on that NFT can be taxed at a maximum rate of 28 percent, higher than the usual 0, 15 or 20 percent long-term capital gains rates. Every digital-asset sale also has to be reflected when you answer the digital asset question on Form 1040 and, for sales, on Form 8949 and Schedule D.

Buying an NFT: Two Very Different Cases

If you pay in US dollars from a bank card, nothing is reported yet. Your cost basis is simply what you paid, including marketplace and platform fees that are part of the purchase price. Keep the receipt, because that basis is what a future sale will be measured against.

If you pay in cryptocurrency, there are two transactions, not one. First, spending the coins is a disposition of those coins. Second, you acquire the NFT with a basis equal to the dollar value of what you gave up. Example: you bought 1 ETH for $1,800 and later use that same 1 ETH, now worth $3,200, to buy an NFT. You have a $1,400 capital gain on the ETH at the moment of purchase, even though no cash touched your bank account. The NFT starts with a $3,200 basis, plus any gas or marketplace fees that are properly part of its acquisition cost. Traders who buy NFTs in a rising market are often surprised by this first layer of tax, because the marketplace receipt only shows the NFT, not the gain on the payment coin. Our crypto tax calculator can estimate that coin-side gain before you commit to a purchase.

Selling or Trading an NFT

A sale for dollars, a sale for cryptocurrency, a swap for a different NFT, and using an NFT to pay for goods or services are all dispositions. In each case the calculation is the same: amount realized minus cost basis minus selling fees equals gain or loss. The character of that gain depends on how long you held the NFT. Hold it for one year or less and the gain is short-term, taxed at your ordinary income rates. Hold it for more than one year and the gain is long-term, usually taxed at 0, 15 or 20 percent depending on your taxable income — unless the collectibles rule below applies.

Worked example: you bought an NFT for $3,200 including fees, held it for 14 months, and sold it for $5,000 in US dollars, paying a $125 marketplace fee. Your amount realized is $4,875 and your long-term gain is $1,675. If instead you accepted payment in ether worth $5,000 on the day of the sale, your amount realized is still $5,000 before fees, and your new ether position starts with a $5,000 basis that day. A later fall in the price of ether does not change the gain you already realized on the NFT.

The Collectibles Twist: The 28 Percent Ceiling

In March 2023 the IRS announced that it would look through an NFT to the asset it represents when deciding whether that NFT is a collectible. If the NFT certifies ownership of a painting, a gem, an antique or another section 408(m) collectible, a long-term gain on the NFT is a collectibles gain, taxed at your ordinary rate up to a maximum of 28 percent. If the NFT instead represents, for example, a right to use or develop a plot of virtual land, that underlying right is not itself a collectible, and the usual long-term rates apply. The difficult cases sit in the middle: profile-picture and generative-art collections are widely understood to be art-like, while utility, access and gaming NFTs need a fact-by-fact look at what the token actually gives the holder. Until you know which side of the line an NFT falls on, do not assume the lower 15 percent rate. Note the comparison honestly: 28 percent is a ceiling, not a flat rate — a taxpayer whose ordinary rate is lower pays the lower rate.

Creators, Minting and Royalties

Minting an NFT — creating the token — is not by itself a sale, and it does not create income merely because the token now exists in your wallet. Income arrives when you sell it. For a creator selling their own work in the course of a trade or business, that sale price is generally ordinary business income, not a capital gain, because the work is self-created property and, for a business, inventory-like. Expenses of the business, such as minting and listing fees, are handled as business expenses rather than added to a capital basis in the way an investor would treat purchase fees.

Royalties programmed into a smart contract follow the same logic: each royalty payment a creator receives on a secondary sale is generally ordinary income at its dollar value on the day it is received, and that amount then becomes the basis of the coins received. A collector, by contrast, who simply resells an NFT they bought as an investment reports a capital gain or loss as described above. The same wallet can contain both kinds of activity, which is exactly why creators should keep business sales in separate records — or a separate wallet — from personal collecting.

Losses, Dead Collections and Worthless NFTs

A loss is only realized when there is a sale or another taxable disposition for less than basis. An NFT that has fallen in floor price but still sits in your wallet has an unrealized loss, however painful that feels. Selling it, even for a small amount, realizes the loss, which can then offset capital gains and, after netting, up to $3,000 of other income per year, with the remainder carried forward. Our tax-loss harvesting estimator shows how that offset arithmetic works.

Simply abandoning or burning a token is murkier. A burn with nothing received in return may support a loss claim in some circumstances, but the facts, documentation and current guidance matter, and a casual burn of a still-tradeable token is not the same as a genuine worthlessness event. Do not assume a burn automatically creates a deductible loss, and get advice before relying on one for a large amount. Also note that personal-use property cuts the other way: if an NFT was genuinely bought purely for personal enjoyment rather than investment, a gain is still taxable, but a loss on personal-use property is generally not deductible at all.

How NFT Activity Is Reported

Sales of NFTs held as investments are reported like other digital-asset sales: each transaction on Form 8949, summarized on Schedule D, with the digital asset question on Form 1040 answered yes if you sold, traded or otherwise disposed of a digital asset during the year. Brokers and marketplaces are moving into the Form 1099-DA reporting system, but coverage varies by platform and asset, and many NFT sales — especially wallet-to-wallet and offshore-platform sales — will still arrive with no form at all. No form does not mean no tax. Creator and royalty income belongs on the business or other-income lines that fit the creator's situation, not on Form 8949 as if it were an investment sale. For the surrounding mechanics, see our guide on how to calculate crypto gains and losses.

Records to Keep for Every NFT

• The date you acquired the NFT, how you acquired it, and what you paid, including the dollar value of any cryptocurrency used and your basis in that cryptocurrency.
• Gas, minting, listing and marketplace fees for each transaction, with transaction hashes.
• The date of every sale or trade, what you received, and its dollar value that day.
• For creators, a separate log of primary sales and royalty receipts, with the dollar value on each receipt date.
• Screenshots or exports are a backup, not a substitute: export the marketplace history while the platform still offers it.

Mistakes We See

• Forgetting the gain on the coins spent to buy the NFT, and reporting only the later NFT sale.
• Assuming every long-term NFT gain qualifies for the 15 percent rate, without checking the collectibles look-through.
• Treating creator royalties as capital gains instead of ordinary income.
• Claiming a loss for a token that merely fell in value, without any actual disposition.
• Mixing creator business activity and personal collecting in one wallet with no separate records.
• Ignoring an NFT sale because no tax form arrived from the marketplace.

Sources

• IRS — Digital Assets
• IRS — Guidance on Nonfungible Tokens (collectibles look-through)
• IRS — Topic 409, Capital Gains and Losses
• IRS — About Form 8949

Frequently asked questions

Related guides

• Crypto Airdrops and Forks Tax Guide — When dropped coins become income, and the basis they take.
• Is Transferring Crypto Between Your Own Wallets Taxable? — Why moving your own coins is not a taxable event — and the records to keep anyway.
• How Is Cryptocurrency Taxed? — The pillar guide: the property rule and the two tracks every crypto tax question runs through.
• Free Crypto Tax Calculator — Estimate your 2026 tax in under a minute.

Keep learning

• What Crypto Activity Is Taxable? — Selling, trading, spending, staking and airdrops — which events create tax and which do not.
• How to Calculate Crypto Gains and Losses — Proceeds minus basis, step by step, with worked examples.
• Form 8949 for Crypto: Line-by-Line — Parts I and II, boxes A to F, and when you can summarize instead of listing every sale.