Non-fungible tokens, known simply as NFTs, first hit the scene in 2014. But these digital tokens spiked in popularity throughout 2021 and early 2022, as CryptoPunks and Bored Ape Yacht Club exploded. Though NFTs are still relatively new, roughly 360,000 people owned them by the end of 2021, and this number has likely increased throughout 2022.
If you minted, bought, sold, or traded NFTs this year, you might be wondering about the tax implications. Since cryptocurrency can complicate your tax returns, how do NFTs impact your refund?
Don’t worry, we’ll answer all of your pressing NFT tax questions in this guide, including how NFTs are taxed, how to calculate your NFT taxes, and how to file them.
First, what are NFTs?
NFTs are units of data stored on the blockchain, a digital ledger. Blockchain technology is also used by cryptocurrencies — however, while crypto is a fungible asset that can be traded and used as digital money, NFTs are not currency.
The most common NFTs are digital assets that represent artwork, like videos, photos, audio, and more. The prices of NFTs are primarily determined by supply and demand, much like tangible assets.
You can buy or sell NFTs through digital marketplaces. OpenSea, Rarible, NFT Top Shop, Binance, Nifty Gateway, and more.
How are NFTs taxed?
There are two ways NFTs can be taxed: as capital gains or collectibles. Right now, the IRS does not have clear guidelines on how NFTs should be taxed, but most CPAs recommend treating them as capital gains, which is typically a more affordable strategy overall.
Capital gains tax refers to the profit you make when selling property. NFTs are essentially viewed as digital property, and therefore are subject to the same tax regulations as physical assets.
Will I owe taxes on my NFTs?
Much like crypto, NFTs took off fast and the IRS and federal government are still catching up and ironing out regulations. In general, if you buy or sell an NFT, you probably need to report it on your taxes.
Here’s how NFTs are taxed in different situations:
Buying NFTs with cryptocurrency
While you can avoid taxes upfront by buying NFTs with fiat currency, most exchanges require you to purchase NFTs with cryptocurrency. That triggers a whole additional set of tax rules. For instance, if you use Ethereum to purchase an NFT, you could end up owing taxes, particularly if the NFT you purchase is worth more than the amount you paid for your cryptocurrency.
For example:
You buy $500 worth of Ethereum, which doubles in worth to $800. You then trade all of your Ethereum for an NFT. You’ll incur capital gains tax for the $300 you made when your Ethereum increased in value.
Trading NFTs
When you trade NFTs, which means you exchange one NFT for another, you could incur capital gains or losses. Both are taxable events you must report on your tax returns.
For example:
You buy $500 worth of Ethereum, which doubles in worth to $800. You then trade all of your Ethereum for an NFT. You’ll incur capital gains tax for the $300 you made when your Ethereum increased in value.
Selling NFTs
When you sell NFTs either for cryptocurrency or US dollars, you’re also required to report the net profit or loss on your taxes.
For example:
You buy an NFT for $800. You sell it for $700. You incur $100 of capital loss.
or
You buy an NFT for $1,000. You sell it for $1,400. You incur $400 of capital gains taxes.
Other NFT tax situations
Other situations are less clear. For instance, if you’re gifted an NFT or win one in a giveaway, there are currently no official guidelines on your tax liability. But we recommend talking to a tax expert if you’re in this boat.
What if I created NFTs? Do I need to pay taxes?
Although you won’t be taxed for simply creating an NFT, you are on the hook for capital gains taxes when you mint and sell NFTs.
For example, in order to mint your NFT and public it on an online marketplace like OpenSea, you’ll need to pay a price. Let’s say it costs you 0.1 Ethereum to mint your NFT. To figure out what you owe in taxes, you need to determine how much you paid for that 0.1 ETH. In this case, let’s say you paid $50 USD for your 0.1ETH, and at the time you’re minting your NFT, your Ethereum is worth $150. You would then owe capital gains on the $100 profit you’ve made on the Ethereum.
Minting is only the first step. Once you sell the NFT, you also will owe taxes. If this NFT sells for 0.15 ETH (worth $750), you’d then owe taxes on your profit of $600 ($750 – $150).
Are there any exceptions to NFT taxes?
Not really. If you buy an NFT with fiat currency, like US dollars, then you won’t owe taxes for simply buying and holding NFTs. However, once you do sell the NFT, you’ll owe capital gains taxes on the sale.
How do I calculate my NFT taxes?
Some digital marketplaces may send you a 1099 at the end of the year, detailing your NFT (and crypto) transactions for the past year. This can make filing your taxes a little easier. However, currently marketplaces are not required to provide you with this tax information, and smaller, more niche NFT marketplaces likely will not provide you with tax paperwork.
In this case, it becomes a bit trickier to calculate your NFT taxes, because you’ll need to manually track down your NFT buying and selling activity for the past year. Some crypto tax platforms, like CoinTracker, may allow you to manually export your activity into a spreadsheet, but not every platform will.
Once you do have your NFT transaction data, you can start calculating your taxes. We’ll treat your NFTs as capital gains in this article, since that is the most prominent way to report them.
To get started, you’ll need to figure out if short-term or long-term capital gains apply. If you held the NFT you sold for less than a year, then you’ll pay short-term capital gains. If you held the NFT for more than a year, you’ll pay long-term capital gains.
Calculating short-term capital gains
Short-term capital gains are fairly easy to calculate since they’re treated as taxable income. First, you’ll need to determine your taxable income or adjusted gross income — how much you make in a year, minus any eligible deductions — and then you’ll add the profit from your NFT sales to this number.
So, if your taxable income for 2022 ends up at $50,000 after deductions and you sold an NFT for a profit of $800, your new taxable income figure would be $50,800.
You can estimate your tax liability using the below chart to determine how much you may owe.
| Taxable Income | Tax Rate |
| $0 to $10,275. | 10% of taxable income. |
| $10,276 to $41,775. | $1,027.50 plus 12% of the amount over $10,275. |
| $41,776 to $89,075. | $4,807.50 plus 22% of the amount over $41,775. |
| $89,076 to $170,050. | $15,213.50 plus 24% of the amount over $89,075. |
| $170,051 to $215,950. | $34,647.50 plus 32% of the amount over $170,050. |
| $215,951 to $539,900. | $49,335.50 plus 35% of the amount over $215,950. |
| $539,901 or more. | $162,718 plus 37% of the amount over $539,900. |
So, in this scenario, your tax rate would be 22%. You’ll owe $4,807.50 plus 22% of the amount over $41,775.
To calculate this, subtract $41,775 from $50,800 and you’ll get $9,025. Multiply this by 22% to get $1,985.50. Then, add this number to $4,897.50 and you’ll get $6,883.
This is what you’d pay in income taxes, including the profit you made from your NFT sale. Keep in mind, this is before applying any credits or additional exemptions — it doesn’t mean you’ll necessarily end up with a tax bill.
Calculating long-term capital gains
Figuring out your long-term capital gains taxes for NFTs is a bit trickier. To start, you’ll need to first determine your taxable income. Depending on your tax filing status and taxable income amount, here’s what you could owe.
| Filing Status | 0% Tax Rate | 15% Tax Rate | 20% Tax Rate |
| Single | $0 – $41,675 | $41,676 – $459,750 | $459,751 and above |
| Married, filing jointly | $0 – $83,350 | $83,351 – $517,200 | $517,201 and above |
| Married, filing separately | $0 – $41,675 | $41,676 – $258,600 | $258,601 and above |
| Head of Household | $0 – $55,800 | $55,801 – $488,500 | $488,501 and above |
So, let’s say you’re single and made $60,000 in taxable income this year. If you sold an NFT for a $2,000 profit, you’d owe the IRS 15% of that amount or $300.
This $300 would be paid in addition to what you end up owing in income tax.
How do I file my NFT taxes?
The forms you’ll fill out to report NFTs and cryptocurrency on your taxes vary depending on your filing status. If you buy NFTs recreationally, and have a relatively basic tax situation, the process is much simpler. However, if you’re a creator or an investor earning high figures from NFT sales, the process has a few more steps.
For occasional NFT traders
In addition to filing your 1040, you’ll report your NFT sales, losses, or trades on your tax returns. To do this, you’ll file IRS Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D, Capital Gains and Losses.
On these forms, you’ll report whether you’re reporting short-term (owned less than a year) or long-term (owned more than a year) capital gains. For the code in box F, you’ll input “C” for “collectible.”
For creators
If creating NFTs is part of your profession, then you’ll need to file business taxes using Schedule C and, if applicable, one of the corresponding business forms. Form 1065 (for partnerships), Form 1120 (for corporations), and Form 1120-S (for S-corporations).
Can I use tax software to report my NFT transactions?
Yes, most major tax software will let you file the required forms to report NFT activity. Many, like TurboTax and H&R Block will even ask you if you bought or sold NFTs over the past year, making it a little simpler to navigate the reporting process.
However, the real time-consuming part of filing your taxes through an online tax software option is capturing and detailing all of your cryptocurrency and NFT transactions. If you have a lot of crypto and NFT activity, it may make sense to use a crypto software to help connect and sync your information with one of the major tax platforms.
Some common crypto software options include CoinTracker, TaxBit, TokenTax, ZenLedger, or Accointing. These platforms will help compile all of your cryptocurrency and NFT activity from this year, and some even import directly into tax software programs. For instance, TurboTax and CoinTracker have a partnership that makes it easy to transfer your NFT tax data from CoinTracker to TurboTax.
Do I need to hire a tax professional to help with my NFT taxes?
It might be helpful, especially if it’s your first time reporting NFT transactions, to team up with a certified professional accountant (CPA) or tax specialist to make sure you understand the process — and get as many tax breaks as possible.
If you’re a creator or self-employed individual, you may save money on your taxes by working with a tax company or professional directly, rather than filing online. There are several reasons for this.
First, you typically won’t qualify for free tax filing when reporting more complicated transactions, like self-employed income. In fact, to report self-employed income, you typically have to pay for one of the highest tiers that online tax software offers.
Secondly, a tax professional can make sure you’re filing the correct forms for your situation and may make recommendations about how to lower your tax liability next year.
A tax professional can make sure you’re also taking advantage of any credits or deductions you’re eligible for as a business owner, minimizing your tax burden.
Ultimately, you don’t need to hire a CPA to report NFTs on your taxes — especially if you’re an occasional trader with a pretty simple tax situation otherwise. But, if you have a high volume of NFT or crypto activity or are a creator, it could be beneficial to work with a certified tax specialist.
NFT taxes aren’t fun, but they are required
Let’s face it: taxes are already complicated before adding the additional layer of NFTs and cryptocurrency. While reporting your NFT profits and losses can take additional time, not reporting this activity could get you in trouble with the IRS — and you may end up with a bill, plus interest charges for any unpaid balances.
Most NFT transactions will trigger a tax event, which means if you’re buying or selling NFTs, you probably owe taxes on them. Talking to a tax specialist can help you learn more about your tax liability, so you’re prepared come tax season.
