By the ChainTax Editorial Team · Updated June 2026 · Researched from authoritative sources. General information, not professional advice.
Non-fungible tokens (NFTs) sit at the intersection of two things the Internal Revenue Service (IRS) already taxes: cryptocurrency and collectible property. Because of that overlap, a single NFT trade can create more tax consequences than people expect. This guide walks through how buying, selling, creating, and receiving NFTs is treated under current U.S. federal rules, where the law is still unsettled, and what records you need to keep. It is written for a general U.S. audience.
There is no separate NFT tax. Instead, the IRS applies its existing digital-asset framework, which begins with IRS Notice 2014-21 — the guidance establishing that virtual currency is treated as property for federal tax purposes. An NFT is itself a digital asset and a piece of property, and it is almost always purchased using another piece of property: cryptocurrency such as Ether. That combination is the key to understanding NFT taxes. Disposing of the crypto is one taxable event, and the NFT you receive carries its own cost basis for the next time you dispose of it.
When you buy an NFT with cryptocurrency, you are not making a tax-free purchase the way you would by swiping a debit card. You are spending property. The IRS treats spending crypto on an NFT as a disposal of that crypto at its fair market value on the day of the transaction. You compare that value against your cost basis in the coins to compute a capital gain or loss.
At the same moment, you establish the NFT's cost basis, generally equal to the fair market value of the crypto you handed over (plus acquisition costs such as gas). So one transaction does two things: it closes out a position in your crypto and opens a new one in your NFT.
When you later sell an NFT for crypto, swap one NFT for another, or sell it for U.S. dollars, that is another taxable disposal. Your gain or loss is the proceeds (the fair market value of what you receive) minus your cost basis in the NFT. As with other capital assets, the holding period matters: held one year or less, the result is a short-term gain taxed at ordinary rates; held more than one year, it is a long-term gain taxed at long-term rates — subject to the important collectibles wrinkle described below.
Here is where NFTs diverge from ordinary crypto. The U.S. tax code taxes long-term gains on collectibles (such as art, gems, stamps, and coins) at a maximum rate of 28%, higher than the usual top long-term capital gains rate. The open question has been whether NFTs count as collectibles.
In IRS Notice 2023-27, the IRS announced its intent to issue guidance and described a proposed "look-through" analysis. Under that approach, the IRS would examine the asset the NFT represents. If the NFT provides the holder a right to, or ownership of, an underlying asset that is itself a collectible (for example, a digital file treated as a work of art, or a token tied to a physical gem), the NFT would be treated as a collectible — and a long-term gain could be subject to the up-to-28% collectibles rate. If the underlying asset is not a collectible (for instance, an NFT representing a plot in a virtual world or certain utility), it generally would not be.
It is important to be precise here: Notice 2023-27 set out a proposed framework and requested public comment. It is interim guidance, not a finalized rule. This is one of the most evolving areas of digital-asset taxation, and the treatment of a specific NFT can be genuinely uncertain. Treat any collectibles conclusion as provisional and confirm it with a CPA.
The rules above describe an investor who buys and sells. A creator who mints and sells NFTs is in a different position. Income from primary sales of NFTs you create is generally ordinary income, not a capital gain, because you are selling something you produced rather than disposing of an investment. If the activity rises to the level of a trade or business, that income is typically reported on Schedule C and may be subject to self-employment tax reported on Schedule SE.
Many NFT smart contracts also pay creators royalties on secondary sales. Those royalties are likewise ordinary income, recognized at the fair market value of the crypto received when you receive it. Creators should track both primary-sale proceeds and the ongoing stream of royalty payments, each valued in U.S. dollars on its receipt date.
| Event | Who | Typical tax treatment |
|---|---|---|
| Buy NFT with crypto | Buyer | Taxable disposal of the crypto (capital gain/loss); sets NFT's basis |
| Sell or trade an NFT | Seller/investor | Capital gain or loss vs. NFT basis; possible up-to-28% collectibles rate if long-term |
| Mint and sell an NFT you created | Creator | Ordinary income; Schedule C / SE if a business |
| Receive secondary-sale royalties | Creator | Ordinary income at fair market value when received |
| Receive an airdropped NFT | Recipient | Generally ordinary income at fair market value when received |
| Gas fees paid to buy/mint | Any | Generally added to cost basis (acquisition) or reduce proceeds (disposal) |
Blockchain transaction (gas) fees are part of the economics of every NFT trade, and they are not ignored for tax purposes. As a general principle, fees paid to acquire an asset are added to its cost basis, and fees paid to sell reduce the proceeds. So gas paid when buying or minting an NFT generally increases the NFT's basis, while gas paid on a sale generally reduces the amount realized. Note that gas is itself usually paid in crypto, so paying it can be a small taxable disposal of that crypto as well. Because the IRS has not issued exhaustive line-by-line guidance on every fee scenario, document each fee carefully and ask a CPA about edge cases.
If you receive an NFT for free through an airdrop — often as a reward or promotion — that is generally ordinary income equal to the NFT's fair market value when you gain control of it, consistent with how the IRS treats other airdropped digital assets. That value also becomes your cost basis, so a later sale produces a separate capital gain or loss. Valuing a thinly traded airdropped NFT can be difficult; keep evidence of how you arrived at the figure.
Many NFTs have fallen dramatically in value, and holders naturally want to claim a loss. The cleanest way to recognize a capital loss is to actually dispose of the NFT — sell it, even for a tiny amount — which crystallizes a deductible capital loss measured against your basis. Simply asserting that an NFT is "worthless" without a disposal is far more fragile: worthlessness and abandonment claims have strict requirements and have historically been contested by the IRS for hard-to-value property. If you are holding an illiquid NFT at a steep loss, talk to a CPA about whether and how to dispose of it before year-end rather than relying on a worthlessness argument.
NFT transactions are basis-tracking puzzles because each one touches at least two assets. For every NFT you should be able to reconstruct:
Because a single NFT purchase can generate two reportable events, sloppy records tend to overstate gains. Dedicated crypto-tax software and careful spreadsheets are common for active NFT participants.
Suppose you bought 2 ETH long ago for a total of $1,800, including fees. That $1,800 is your cost basis, or $900 per ETH. Today you buy an NFT priced at 1 ETH, and that ETH is worth $3,000 at the moment of purchase. You also pay $60 of gas. This single purchase has two taxable layers:
If you later sell that NFT for $4,000, your gain would be $4,000 − $3,060 = $940 — and if it is a long-term gain on an NFT the IRS treats as a collectible under the Notice 2023-27 look-through, it could be taxed at the up-to-28% collectibles rate rather than the ordinary long-term rate. Two ordinary-looking clicks, several distinct tax outcomes.
Investor disposals of crypto and NFTs are reported on Form 8949 and summarized on Schedule D. Ordinary income — airdropped NFTs, or creator sales and royalties — is reported as income, with business activity flowing through Schedule C and self-employment tax through Schedule SE. As with all digital assets, you must answer the digital asset question on Form 1040 truthfully. Because NFT collectibles treatment is unsettled, a CPA can help you take a defensible, well-documented position.
A reminder on authority: the rules summarized here trace to IRS guidance, including Notice 2014-21 (digital assets as property), Notice 2023-27 (the proposed look-through analysis for NFTs as collectibles), the long-term collectibles rate of up to 28%, Form 8949 and Schedule D for capital transactions, and Schedule C and Schedule SE for creators. Several of these areas — especially the collectibles classification — remain under development and may change. Always confirm current rules with the IRS directly or a qualified CPA before filing.
Potentially yes. Spending crypto on an NFT is a disposal of that crypto. If the crypto rose in value since you acquired it, you have a capital gain to report even though you never converted to U.S. dollars. The NFT then takes a cost basis equal to the value you paid.
It depends, and the area is unsettled. In Notice 2023-27 the IRS proposed a look-through analysis: if the NFT represents an underlying asset that is itself a collectible, a long-term gain could face the up-to-28% rate. This is interim, not final, guidance, so confirm your specific NFT with a CPA.
Income from selling NFTs you create is generally ordinary income rather than capital gain. If it is a trade or business, it is typically reported on Schedule C and may be subject to self-employment tax on Schedule SE. Secondary-sale royalties are also ordinary income when received.
The most reliable way to recognize a capital loss is to actually dispose of the NFT, which sets the loss against your basis. Claiming an NFT is "worthless" without a disposal is harder to support and can be challenged. Discuss the best approach with a CPA before year-end.
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