Non-fungible tokens (NFTs) are unique digital assets recorded on a blockchain. Each token carries distinct identifiers and metadata that verify ownership and authenticity. NFTs can represent digital art, music, collectibles, in-game items, or access passes. Owning an NFT means owning the token—the on-chain proof of ownership—not automatically the copyright to the underlying work; usage rights depend on the terms or smart contract attached to the token.
What drives value
NFT values are highly variable. Scarcity and rarity, creator reputation, community interest, and historical significance all influence prices. Utility also matters—some NFTs unlock communities, event access, or in-game advantages. Because each piece is unique, valuation is often subjective and depends on market demand and the benefits attached to ownership.
How the IRS treats NFTs
The IRS treats digital assets, including NFTs, as property. That framework drives most tax outcomes:
- Buying with crypto: Purchasing an NFT with cryptocurrency is two transactions for tax purposes. Disposing of the crypto can trigger a capital gain or loss based on its change in value since acquisition.
- Selling an NFT: The difference between sale proceeds and cost basis (including fees) is a capital gain or loss.
- Short-term (held one year or less): taxed at ordinary income rates (about 10%–37%, depending on the bracket).
- Long-term (held more than one year): taxed at 0%, 15%, or 20%.
- Collectible classification: Some NFTs may be treated as “collectibles” using a look-through analysis of the underlying asset (for example, digital art). If so, long-term gains may be taxed at a rate of up to 28%.
- Creators: Minting itself is generally not taxable. However, proceeds from primary sales are ordinary income (often self-employment income if part of a trade or business). Ongoing royalties from secondary sales are also ordinary income when received.
- Gifts: Receiving an NFT as a gift is not taxable to the recipient. Donors may have gift-tax filing obligations if the value exceeds the annual exclusion ($17,000 per recipient for 2024).
2025 reporting updates
In 2025, the IRS tightened digital-asset compliance. Taxpayers must answer the digital-asset question on Form 1040 and other returns. Expanded broker reporting, Form 1099-DA for certain platform activity, and heightened penalties underscore a simple reality: even if a marketplace does not issue a form, individuals remain responsible for complete and accurate reporting.
Accurate record-keeping is critical. Taxpayers should maintain contemporaneous records of each NFT and crypto transaction—comprising dates, amounts, fair market values, fees, and the nature of the event—so that gains, losses, and income can be computed correctly when filing.
What’s a taxable event?
Common taxable events include selling NFTs or cryptocurrencies for cash, trading one cryptocurrency for another, using cryptocurrencies to buy an NFT, receiving staking or airdrop rewards, and making gifts exceeding applicable thresholds. Using digital assets to pay for goods or services can also trigger the recognition of a gain. Because NFTs are unique, fair market value at the time of each transaction drives the calculation.
Practical tips
- Plan holding periods. Long-term capital gains rates are generally more favorable than short-term rates.
- Harvest losses thoughtfully. Selling underperforming NFTs can offset gains in other areas.
- Know your role. Tax treatment differs for creators (ordinary income), frequent traders (potential business income), and long-term collectors (capital gains).
- Review rights. Understand the usage rights conveyed by each NFT before purchase or sale.
- Centralize your records. Maintain a single, organized log for wallets, marketplaces, gas fees, and royalty receipts to ensure filings reflect complete and accurate information.
Bottom line
NFT taxation is evolving, but the core principle remains clear: the IRS treats NFTs as property, and transactions can generate taxable income or gains. Clear records, smart timing, and an understanding of one’s role—whether as creator, trader, or collector—help taxpayers stay compliant and avoid surprises. For additional information, contact your Stephano Slack tax manager/partner at 610-687-1600 or taxinfo@StephanoSlack.com.
Author Robert Radzinski, CPA, Manager, manages tax compliance for businesses and high-net-worth individuals. Rob can be contacted at 610-687-1600 or rradzinski@stephanoslack.com.
Disclaimer: This post is for informational purposes onle and should not be considered as professional advice.
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