How are NFTs taxed? A guide for creators, collectors, and investors
Did you buy, sell, or mint an NFT this year? Here’s how it could impact your taxes.
As crypto has rocketed into the mainstream in 2021 amid record global adoption and bitcoin all-time highs, “NFT” emerged as an undisputed crypto buzzword. As of January 2024, the global NFT market cap was worth north of $75 billion and an estimated 9.3 million people owned an NFT. If you’re among them — or if you created an NFT yourself — you might be curious how your ape-themed avatar could impact your taxes this year. But first, let’s start with some basics.
First things first...
Coinbase doesn’t provide tax advice. This article represents our stance on IRS guidance received to date, which may continue to evolve and change. None of this should be considered as advice or an individualized recommendation, but it’s important to us that our readers have relevant information available to them in the most accessible way possible. Please consult a tax professional regarding your own tax circumstances.
What is an NFT, exactly?
NFTs (or “non-fungible tokens”) are a kind of digital asset where each token is unique and can’t be duplicated — as opposed to “fungible” assets like dollar bills, which are all interchangeable and worth exactly the same amount. Because every NFT is unique, they can be used to authenticate ownership of digital assets like artworks, recordings, and virtual real estate. NFTs are verified and stored on blockchains, like Ethereum
How do you buy an NFT?
NFTs are mostly sold on specialized marketplaces (like Coinbase NFT) that will prompt you to link a self-custody wallet, like Coinbase Wallet or Metamask. Because NFTs live on the blockchain, you’ll first need to fund your self-custody wallet with the right crypto (ETH for Ethereum and SOL for Solana, for example) before buying.
How are NFTs taxed?
There are many ways to interact with NFTs, whether you bought a piece of art for your crypto wallet, or created your own animal-themed collection. The tax implications, however, depend on a few factors: Whether you’re an investor or a creator — and what you did with the NFTs you own. It’s also important to note that the IRS hasn't yet issued any NFT-specific guidance, so you should speak with your tax advisor in addition to reading this overview. Okay, let’s take a closer look.
For NFT Investors
Generally speaking, if you invest in NFTs, any money you earn from sales or trades are treated as capital gains and are taxed like earnings from more typical capital assets — like property, stocks, or bonds.
How am I taxed when I buy an NFT?
Swapping crypto for an NFT might seem like exchanging cash for art, but these transactions aren’t the same. Technically, you need to sell your crypto first and then use the proceeds to buy the NFT — and when you sell your crypto, you’ll either gain or lose money on the sale.
This means that when you spend crypto to acquire an NFT, the IRS treats it like a two-part transaction – first a sale of your crypto, which is taxed as a capital gains transaction, and then a purchase of an NFT using the proceeds from that sale. How much you’ll pay in taxes depends on a few factors, like how long you held the crypto, your annual income, and how much you made (or lost) from the sale. (Note: simply buying an NFT with cash doesn’t trigger capital gains tax.)
Here’s an example:
You originally bought 1 ETH for $2,500, and after its value rose to $10,000, you then spent your ETH to acquire an NFT.
If you purchased the ETH less than one year ago, your proceeds from the sale will be taxed at your ordinary federal income tax rate.
If you purchased the ETH at least one year ago, you’ll be taxed at the long-term capital gains rate based on your income and tax filing status.
And if your income is above a certain threshold, you may need to pay additional taxes via the Net Investment Income Tax (NIIT) on both short and long-term gains.
How am I taxed when I trade or sell an NFT?
Selling an NFT for crypto or trading one NFT for another is treated as a sale and taxed as a capital gains transaction. How much you’ll pay in taxes depends on a variety of factors, including how long you held the NFT, the type of NFT, your annual income, and whether you had a gain or a loss.
Another example:
You originally bought an NFT for $2,500 in ETH, and after its value rose to $10,000 in ETH, you sold the NFT for cash.
If you purchased the NFT less than one year ago, your proceeds from the sale will be taxed at your federal income tax rate.
If you purchased your NFT more than one year ago, you’ll be taxed at the long-term capital gain’s rate based on your income and tax filing status.
Define art: Capital gain tax rates for artworks
If the IRS considers your NFT to be a work of art, they could apply the maximum 28% capital gains rate for collectibles. What’s considered a work of art, you ask? Most people would say the answer to this question is somewhat subjective — and indeed, the IRS hasn’t provided guidance on when an NFT becomes a work of art. Without clear rules, we recommend bringing a description of your NFT to a tax professional and letting them decide.
For NFT Creators
If you created an NFT, you'll need to report any income you made from selling it on your tax return, to be taxed at your ordinary income tax rate. You may also need to pay a self-employment tax if you created that NFT as part of your profession or business.
How am I taxed when I mint (create) an NFT?
You won’t owe taxes just for minting an NFT. Simply creating digital content or art on an NFT-compatible blockchain (like Ethereum) isn’t taxable.
How am I taxed when I sell an NFT I minted?
When you sell an NFT you created, you're taxed at ordinary income tax rates (along with self-employment tax rates if creating that NFT was part of your profession or business).
How am I taxed on royalties from the resale of an NFT I minted?
If you created an NFT and are paid royalties in crypto every time someone sells it, then you’ll pay both ordinary income tax, and self-employment tax on the value of your royalties if you created the NFT as part of your profession or business.
Will my NFT marketplace send me a tax form?
Not always. Because of a lack of IRS guidance on tax reporting for digital assets, you might not receive a tax form about your NFT transactions on an NFT marketplace. Take time to look over any information your marketplace may provide — it could contain helpful details for filing your return.
No matter which marketplace you use, you should always keep detailed records of all of your purchases and sales, since it’s your responsibility to report your transactions to the IRS on your tax return.
What IRS forms will I need to report my NFT income?
For Investors
Individual investors should report NFT income via IRS Form 1040 (U.S. Individual Income Tax Return) along with IRS Form 8949 (Sales and other Dispositions of Capital Assets) and IRS Schedule D (Capital Gains and Losses).
For Creators
Creators (who create NFTs as part of their profession or business) should report NFT income based on their filing status:
Self-employed creators: Schedule C (Profit or Loss From Business) and Schedule SE, Self Employment Tax
C Corporations: Form 1120 (U.S. Corporation Income Tax Return)
S Corporations: Form 1120S (U.S. Income Tax Return for an S Corporation)
Partnerships: Form 1065 (U.S. Return of Partnership Income)
And for more on crypto taxes, see our complete guide, Understanding crypto taxes.
