NFT Taxes Explained: What You Need to Know
Non-fungible tokens have transformed digital ownership, creating new opportunities for artists, collectors, and traders alike. But they’ve also created new tax obligations that many people don’t fully understand.
Whether you’re minting art, flipping profile pictures, or receiving royalties, the IRS wants to know about it. This guide covers everything you need to know about NFT taxes in 2026.
How the IRS Views NFTs
The IRS classifies NFTs as property, similar to other cryptocurrencies. This means:
- NFT sales are subject to capital gains tax
- NFT purchases with crypto trigger a taxable event (you’re selling crypto to buy the NFT)
- Creating and selling NFTs can be ordinary income (if it’s your business)
- NFT royalties are taxable income
The tax treatment depends on whether you’re a collector, trader, or creator, and how long you hold the NFTs.
NFT Tax Scenarios Explained
Buying an NFT
When you purchase an NFT with cryptocurrency, that’s a taxable event because you’re technically selling your crypto.
Example:
- You buy an NFT for 1 ETH
- Your cost basis in that ETH was $1,000
- ETH is worth $2,000 at the time of purchase
- You realize a $1,000 capital gain on the ETH sale
- Your cost basis in the NFT is $2,000 (the fair market value)
If you buy an NFT with fiat currency, there’s no taxable event at purchase.
Selling an NFT
When you sell an NFT, you calculate your gain or loss like any other asset.
Capital Gain/Loss = Sale Price - Cost Basis - Fees
Example:
- You sell an NFT for 2 ETH
- ETH is worth $3,000 at the time of sale ($6,000 total)
- Your cost basis in the NFT was $2,000
- Capital gain: $6,000 - $2,000 = $4,000
Short-term vs. Long-term:
- Held less than 1 year: Taxed at ordinary income rates (up to 37%)
- Held more than 1 year: Taxed at long-term capital gains rates (0%, 15%, or 20%)
Minting an NFT
If you create and mint an NFT, the tax treatment depends on your circumstances:
As a hobbyist:
- No taxable event at minting
- When you sell, your cost basis is the gas fees and minting costs
- Profit is capital gains
As a business/artist:
- Sales are ordinary income, not capital gains
- You can deduct business expenses (gas fees, platform fees, marketing)
- May need to pay self-employment tax
Trading NFTs
Trading one NFT for another is a taxable event, just like crypto-to-crypto trades.
Example:
- You trade NFT A (cost basis $5,000) for NFT B
- NFT B is worth $8,000 at time of trade
- Capital gain: $8,000 - $5,000 = $3,000
- Your cost basis in NFT B is $8,000
NFT Royalties
If you’re a creator receiving royalties on secondary sales, these are taxable income.
Tax treatment:
- Royalties are ordinary income
- Report on Schedule C if you’re a sole proprietor
- Taxed at your marginal income tax rate
- May be subject to self-employment tax
Example:
- You receive 5% royalties on a 10 ETH sale (0.5 ETH)
- ETH is worth $2,000 at time of receipt
- Report $1,000 as ordinary income
Receiving NFTs as Payment
If you receive an NFT as payment for goods or services, it’s taxable income.
- Report the fair market value as income
- This becomes your cost basis for future sales
NFT Airdrops
Free NFT airdrops are taxable income at fair market value when received.
Challenge: Determining fair market value for airdropped NFTs can be difficult, especially if there’s no trading history.
The Challenges of NFT Tax Reporting
Determining Cost Basis
NFT cost basis includes:
- Purchase price (in fair market value)
- Gas fees for purchase transaction
- Platform fees
- Minting costs (if you created it)
Tracking all these components manually is tedious, especially across multiple marketplaces and chains.
Tracking Across Marketplaces
NFT traders use multiple platforms:
- OpenSea
- Blur
- Magic Eden
- Tensor
- LooksRare
- X2Y2
- Foundation
- And many more
Each marketplace has different fee structures and transaction formats.
Cross-Chain NFT Activity
NFTs exist on multiple chains:
- Ethereum (most blue-chip NFTs)
- Polygon (lower gas fees)
- Solana (fast transactions)
- Arbitrum, Optimism (L2 scaling)
- Bitcoin Ordinals
Tracking activity across all chains requires sophisticated software.
Wash Trading Concerns
The IRS hasn’t explicitly applied wash sale rules to NFTs, but it’s a gray area. Be cautious about:
- Selling an NFT at a loss
- Buying a substantially similar NFT within 30 days
Document your transactions carefully.
How Awaken Tax Handles NFT Taxes
This complexity is exactly why we recommend Awaken Tax for NFT traders. Here’s what makes it stand out:
Comprehensive NFT Marketplace Support
Awaken automatically tracks transactions from:
- OpenSea
- Tensor
- Magic Eden
- Blur
- LooksRare
- And thousands more marketplaces and protocols
Automatic Cost Basis Calculation
Awaken correctly calculates your cost basis including:
- Original purchase price
- Gas fees
- Platform fees
- Minting costs
Royalty Tracking
For creators, Awaken tracks incoming royalties and categorizes them as income automatically.
Multi-Chain NFT Support
Awaken covers NFTs across:
- Ethereum
- Solana
- Polygon
- And all other supported chains
10,000+ Protocol Support
Beyond just marketplaces, Awaken understands NFT-related DeFi like:
- NFT lending protocols
- NFT fractionalization
- NFT staking
Step-by-Step: Reporting Your NFT Taxes
Step 1: Gather Your Wallet Addresses
List all wallets containing NFTs:
- MetaMask
- Phantom (Solana)
- Hardware wallets
- Any other wallet you’ve used
Step 2: Connect to Tax Software
Use Awaken Tax to:
- Connect all your wallets
- Automatically import all NFT transactions
- Categorize purchases, sales, mints, and royalties
Step 3: Review Transactions
Check that:
- All purchases are captured with correct cost basis
- All sales are recorded
- Royalties are properly categorized as income
- Gas fees are included in calculations
Step 4: Select Accounting Method
Choose FIFO, LIFO, or HIFO:
- FIFO: First bought = first sold
- LIFO: Last bought = first sold
- HIFO: Highest cost = first sold (usually minimizes gains)
Step 5: Generate Tax Forms
Export:
- Form 8949 for capital gains/losses
- Schedule D summary
- Income documentation for royalties
Tax-Saving Strategies for NFT Traders
Hold for Long-Term Capital Gains
If possible, hold NFTs for more than one year before selling. Long-term capital gains rates (0-20%) are significantly lower than short-term rates (up to 37%).
Harvest Losses
If you hold NFTs that have declined in value, consider selling them to realize losses. These losses can offset other capital gains.
Awaken’s tax-loss harvesting tool can identify these opportunities.
Track All Costs
Ensure every gas fee and platform fee is included in your cost basis. These reduce your taxable gain.
Consider Business Structure
If you’re a serious NFT trader or creator, operating as a business entity may provide tax advantages. Consult a tax professional.
Document Everything
Keep records of:
- Why you purchased each NFT
- Your intention (collecting, trading, creating)
- All transactions and fees
Common NFT Tax Mistakes
Forgetting Crypto-to-NFT Is Taxable
Buying an NFT with crypto triggers capital gains on the crypto. Don’t forget this!
Missing Gas Fees in Cost Basis
Gas fees increase your cost basis and reduce your taxable gain. Include them.
Not Reporting Failed Transactions
Failed transactions still cost gas. This is a deductible cost.
Ignoring Airdropped NFTs
Even free NFTs are taxable income. Track them all.
Underestimating Royalty Income
Creators often forget that ongoing royalties are income. Set aside money for taxes.
NFTs and the Collectibles Tax Rate
There’s ongoing debate about whether NFTs qualify as “collectibles” subject to a 28% maximum capital gains rate instead of the typical 20%.
The IRS issued Notice 2023-27 requesting comments on this question. Until there’s clear guidance, most tax software treats NFTs like other digital assets at standard capital gains rates.
Stay informed about regulatory updates, as this could change.
Conclusion
NFT taxes add complexity to an already complicated crypto tax landscape. Between multiple marketplaces, cross-chain activity, and various transaction types (buying, selling, minting, royalties), accurate reporting requires careful tracking.
The good news is that tools like Awaken Tax make this manageable. With automatic marketplace integration, comprehensive cost basis calculation, and support for 10,000+ protocols, Awaken handles the complexity so you don’t have to.
Ready to simplify your NFT taxes? Get started with Awaken Tax free and see your entire NFT portfolio organized in minutes.
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