How Are NFTs Taxed?

NFTs (non-fungible tokens) are taxed as property by the IRS, meaning buying, selling, minting, and trading NFTs all create taxable events. When you sell an NFT for more than your cost basis, you owe capital gains tax. The IRS confirmed in Notice 2023-27 that certain NFTs may qualify as "collectibles" under IRC Section 408(m), subject to a higher maximum long-term capital gains rate of 28% — compared to the standard 20% maximum for other capital assets.

IRS Classification of NFTs

The IRS addressed NFT taxation directly in Notice 2023-27, providing interim guidance while soliciting public comments on permanent rules.

Property Treatment

Like all cryptocurrency and digital assets, NFTs are treated as property under IRS Notice 2014-21. Every disposition — sale, trade, gift, or exchange — triggers a taxable event requiring gain or loss calculation.

Collectible Determination

Under Notice 2023-27, the IRS uses a "look-through" analysis to determine whether an NFT is a collectible. If the NFT represents a right to or ownership of an underlying asset that would itself be a collectible under IRC Section 408(m)(2) — such as a work of art, a gem, a stamp, or an antique — then the NFT is treated as a collectible.

This matters because long-term capital gains on collectibles are taxed at a maximum rate of 28%, rather than the standard 0%/15%/20% rates that apply to most long-term capital gains under IRC Section 1(h)(4). Short-term gains on NFTs are taxed at ordinary income rates regardless of collectible status.

Tax Treatment by Transaction Type

Buying an NFT

Purchasing an NFT with cryptocurrency is a two-part taxable event:

Disposing of crypto: If you buy an NFT with ETH, you are disposing of ETH. Your gain or loss on the ETH equals the fair market value of the NFT minus your ETH cost basis.
Acquiring the NFT: Your cost basis in the NFT equals the fair market value of the crypto used plus any gas fees paid. Per IRS Publication 551, the cost basis of property includes all costs of acquiring it.

If you buy an NFT with fiat currency directly, only the acquisition occurs — there is no disposition event.

Minting an NFT

For buyers who mint an NFT from a smart contract:

Cost basis = mint price (in crypto or fiat) + gas fees
Crypto disposition: If you pay the mint price in ETH, the ETH disposal is a taxable event
Gas fees: Gas fees paid to execute the minting transaction are added to your cost basis in the NFT

For creators who mint their own NFT to sell, the minting itself is generally not a taxable event. The taxable event occurs when you sell the minted NFT — your cost basis includes the gas fees and any creation costs.

Selling an NFT

When you sell an NFT, your capital gain or loss equals:

Gain/Loss = Sale Proceeds - Cost Basis - Selling Fees

Sale proceeds include the amount received minus any marketplace fees (such as OpenSea's 2.5% service fee). The holding period determines whether the gain is short-term (held one year or less) or long-term (held more than one year), per IRC Section 1222.

Trading NFTs

Exchanging one NFT for another is a taxable event, similar to crypto-to-crypto trades. You must calculate gain or loss on the NFT you are disposing of, using its fair market value at the time of the trade. The fair market value of the NFT you receive becomes your cost basis in the new NFT.

NFT Creator Taxes

If you create and sell NFTs, your tax treatment depends on whether the IRS considers you a hobbyist or a business.

Business Income

If you regularly create and sell NFTs with the intent to profit, the IRS may classify your activity as a trade or business under IRC Section 162. Revenue from NFT sales and royalties would be reported on Schedule C as self-employment income, subject to:

Income tax at ordinary rates (10-37%)
Self-employment tax of 15.3% (12.4% Social Security + 2.9% Medicare) on net earnings, per IRC Section 1401
Deductible expenses: Gas fees, software costs, marketing, and other business expenses can offset income

Royalty Income

Many NFT marketplaces allow creators to set a royalty percentage (typically 2.5-10%) on secondary sales. These royalties are ordinary income taxable when received. If you are operating as a business, report royalties on Schedule C. If it is a hobby, report on Schedule 1 as "Other income."

Under IRC Section 61(a)(6), royalties are specifically listed as an item of gross income that must be reported.

Creator Cost Basis

When a creator sells their own NFT, the cost basis includes only the direct costs of creating and minting it — gas fees, software licenses, and hired services. Time spent creating the artwork is not deductible as a cost basis item (your labor is not a capital expenditure), though it may be deductible as a business expense on Schedule C.

Gas Fees and NFTs

Gas fees are a significant factor in NFT taxation, especially on Ethereum where fees can range from a few dollars to hundreds during congestion.

Gas on Purchase/Mint

Gas fees paid to acquire or mint an NFT are added to your cost basis. If you pay $200 in ETH for an NFT plus $50 in gas, your cost basis is $250. Using ETH to pay gas is itself a disposition of ETH, creating a small taxable event on the gas amount.

Gas on Sale

Gas fees paid to list or complete a sale reduce your net proceeds. A sale of an NFT for $1,000 with $30 in gas fees results in $970 in net proceeds for gain/loss calculation.

Failed Transactions

Gas fees from failed NFT transactions (e.g., an unsuccessful mint) are a gray area. The IRS has not issued specific guidance, but many tax professionals treat failed transaction gas fees as a deductible loss. Per IRC Section 165(a), losses sustained during the taxable year that are not compensated by insurance are generally deductible. dTax flags failed transactions for your review.

NFTs Received as Payment or Prizes

If you receive an NFT as payment for services, compensation, a prize, or an airdrop, it is taxable as ordinary income at fair market value when received. Under IRC Section 61, gross income includes all income from whatever source derived, including prizes and compensation.

Determining fair market value can be challenging for NFTs with no recent sales history. The IRS may accept the floor price of the collection, a recent comparable sale, or an appraisal. Document your valuation methodology in case of an audit.

NFTs and Wash Sales

Currently, the wash sale rule under IRC Section 1091 does not apply to NFTs because they are not securities. However, the unique nature of NFTs makes wash sales less relevant — unlike fungible tokens, each NFT is unique, so repurchasing the "same" NFT after selling at a loss is typically not possible unless you buy back the exact same token.

If the PARITY Act passes and extends wash sale rules to digital assets, NFTs would likely be covered. However, the "substantially identical" test would be difficult to apply to unique digital art.

Reporting NFT Taxes

Form 8949

Report each NFT sale on Form 8949 with:

Description of property (e.g., "Bored Ape Yacht Club #1234")
Date acquired
Date sold
Proceeds
Cost basis
Gain or loss
Box classification (A-F depending on whether the 1099-DA was received and holding period)

Schedule D

Transfer totals from Form 8949 to Schedule D. If the NFT qualifies as a collectible under Notice 2023-27, use the 28% rate worksheet in the Schedule D instructions for long-term gains.

Schedule C (Creators)

NFT creators operating as a business report sales revenue and deductible expenses on Schedule C.

Frequently Asked Questions

Are NFTs taxed as collectibles?

It depends on the underlying asset. Under IRS Notice 2023-27, the IRS applies a "look-through" test: if the NFT represents a right to a collectible item (artwork, gem, antique, etc.) as defined in IRC Section 408(m)(2), then long-term capital gains are taxed at the higher collectible rate of up to 28%. Digital art NFTs would typically qualify as collectibles, while NFTs representing event tickets or game items may not.

How do I determine the value of an NFT received as payment?

Use the fair market value at the time you receive the NFT. For NFTs in active collections, reference the collection's floor price or recent sales of comparable items on marketplaces like OpenSea or Blur. For unique or illiquid NFTs, you may need a professional appraisal. Document your valuation method and supporting data in case the IRS questions your reported value.

Are gas fees from failed NFT transactions tax deductible?

The IRS has not issued specific guidance on failed transaction gas fees. However, many tax practitioners argue they qualify as deductible losses under IRC Section 165(a), since the gas was spent and cannot be recovered. The ETH used for gas is also a disposition, which may generate a small capital gain or loss. dTax tracks failed transactions and their associated gas fees so you can discuss the deduction with your tax advisor.