NFT Tax Guide 2026
✍️ Author Information
Written by: Davit Cho
Crypto Tax Specialist | CEO at JejuPanaTek (2012~) | Patent Holder (Patent #10-1998821)
7+ years crypto investing experience since 2017 | Personally filed crypto taxes since 2018
LinkedIn: linkedin.com/in/davit-cho-crypto
Email: davitchh@gmail.com
Blog: legalmoneytalk.blogspot.com
Last Updated: December 25, 2025 | Fact-Checked: Based on IRS Publications & Official Guidelines
π Table of Contents
NFTs have created a new frontier in digital ownership, but they've also created significant tax complexity. The IRS treats NFTs differently from other cryptocurrencies, potentially subjecting them to the higher 28% collectibles tax rate that applies to physical art, antiques, and precious metals.
In my experience, NFT investors are often surprised to learn their digital art profits may be taxed at nearly double the rate of Bitcoin gains. I've personally navigated the murky waters of NFT taxation and learned that proper planning can save thousands in unexpected tax bills.
This comprehensive guide covers everything you need to know about NFT taxes in 2026, including the controversial collectibles rate, creator vs collector tax treatment, royalty income, and essential record-keeping practices to stay IRS compliant.
π¨ NFT Tax Quick Facts 2026
π Collectibles Rate: Up to 28% for long-term gains
π Short-Term Rate: Ordinary income (up to 37%)
π️ Creator Income: Self-employment tax applies (15.3%)
π Royalties: Taxed as ordinary income when received
π¨ NFT Tax Basics — How NFTs Are Taxed
The IRS treats NFTs as property, similar to other cryptocurrencies. Every sale, trade, or exchange of an NFT is a taxable event that must be reported. However, NFTs face additional complexity because the IRS has indicated they may qualify as "collectibles" subject to higher tax rates.
In March 2023, the IRS issued Notice 2023-27 requesting comments on NFT taxation and indicating that NFTs representing digital art, music, or other collectible items would likely be treated as collectibles under IRC Section 408(m). This classification has significant tax implications.
When you purchase an NFT with cryptocurrency, you trigger two tax events simultaneously. First, you dispose of the crypto used for payment, potentially realizing a gain or loss. Second, you establish a cost basis in the NFT equal to the fair market value of the crypto paid plus any gas fees.
Minting an NFT as a creator is generally not a taxable event itself. The tax obligation arises when you sell the minted NFT. At that point, your cost basis is typically the gas fees and any direct creation costs, with the sale proceeds minus costs representing your taxable gain.
π¨ NFT Tax Event Summary
| Event | Taxable? | Tax Type |
|---|---|---|
| Minting your own NFT | No | N/A (cost basis = gas fees) |
| Buying NFT with ETH | Yes (ETH disposal) | Capital gain/loss on ETH |
| Selling NFT for ETH | Yes | Capital gain/loss (possibly collectibles rate) |
| Receiving NFT as gift | No (recipient) | Donor's basis carries over |
| Receiving royalties | Yes | Ordinary income + SE tax |
| Trading NFT for NFT | Yes | Capital gain/loss on disposed NFT |
Source: IRS Notice 2023-27 | IRS Notice 2014-21 | IRC Section 408(m)
Trading one NFT for another is a taxable exchange. You dispose of the first NFT at fair market value, recognize any gain or loss, and establish a new cost basis in the received NFT equal to its fair market value at the time of the trade.
Receiving an NFT as a gift follows standard gift tax rules. The recipient doesn't owe tax upon receipt, but they inherit the donor's cost basis for calculating future gains. If the NFT's value at gifting is less than the donor's basis, special rules apply.
Free airdrops and promotional NFTs are taxable as ordinary income at fair market value when received. This becomes your cost basis. If the NFT has no discernible market value at receipt, you may argue for a zero income inclusion with zero cost basis.
Gas fees paid during NFT transactions are added to your cost basis when buying or included as selling expenses when disposing. Proper tracking of gas fees reduces your taxable gain or increases your deductible loss.
π NFT Tax Official Guidance
IRS guidance on NFT and digital asset taxation.
π The 28% Collectibles Tax Rate
The most significant tax concern for NFT investors is the potential 28% collectibles tax rate on long-term capital gains. While typical long-term capital gains on stocks or Bitcoin are taxed at 0%, 15%, or 20%, collectibles face a maximum rate of 28%.
Under IRC Section 408(m), collectibles include artwork, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages, and certain other tangible personal property. The IRS has indicated that NFTs representing these underlying assets may inherit their collectible classification.
The "look-through" approach analyzes what the NFT represents. An NFT of digital art would be treated as art (collectible). An NFT representing a share of a business might not be a collectible. An NFT that's purely a speculative asset without underlying collectible characteristics is less clear.
This creates a potential 8% additional tax compared to the standard 20% maximum long-term capital gains rate. On a $100,000 gain from selling digital art NFTs, that's $8,000 more in federal taxes compared to selling Bitcoin with the same profit.
π NFT Collectibles Rate vs Standard Capital Gains
| Asset Type | Holding Period | Max Tax Rate | Tax on $100k Gain |
|---|---|---|---|
| Bitcoin/ETH | Over 1 year | 20% | $20,000 |
| NFT Art (Collectible) | Over 1 year | 28% | $28,000 |
| Difference | — | +8% | +$8,000 |
| Any Crypto/NFT | Under 1 year | 37% | $37,000 |
Source: IRC Section 408(m) | IRS Notice 2023-27 | Max rates for highest income brackets
Short-term gains (held under one year) are taxed at ordinary income rates regardless of collectible status. The 28% rate only applies to long-term gains. If you flip NFTs within a year, you'll pay ordinary income rates up to 37% regardless of whether they're classified as collectibles.
The 28% rate is a maximum, not a flat rate. If your marginal ordinary income tax bracket is below 28%, your collectibles gains are taxed at your ordinary rate. Only taxpayers in the 32%, 35%, or 37% brackets pay the full 28% on collectibles gains.
PFP (profile picture) collections like Bored Apes, CryptoPunks, and Azuki likely qualify as collectibles under the look-through approach. These represent digital art with collectible characteristics. Gaming NFTs or utility tokens may have stronger arguments against collectible classification.
Music NFTs, video NFTs, and other digital media NFTs present classification questions. Physical music and video aren't traditionally considered collectibles under Section 408(m), but rare recordings might be. The IRS hasn't provided definitive guidance on all NFT types.
Conservative tax planning assumes art-based NFTs are collectibles. Until the IRS provides clearer guidance, treating digital art NFTs as subject to the 28% rate avoids potential underpayment penalties and audit risk.
⚠️ Collectibles Tax Warning
Art-based NFTs likely face the 28% collectibles rate. Plan accordingly.
π° Buying & Selling NFT Tax Events
Every NFT purchase and sale creates specific tax obligations that must be tracked and reported. Understanding these mechanics helps you accurately calculate gains, losses, and your total tax liability from NFT trading activity.
When purchasing an NFT with cryptocurrency like ETH, you're disposing of the ETH at its current market value. If your ETH has appreciated since you acquired it, you realize a capital gain on the ETH disposition. This is a taxable event separate from any future gain on the NFT itself.
Your cost basis in the newly acquired NFT equals the fair market value of the crypto you paid plus any gas fees. For example, if you pay 2 ETH worth $6,000 plus $100 in gas fees for an NFT, your cost basis is $6,100. This basis determines your gain or loss when you eventually sell.
Selling an NFT triggers capital gains tax on the difference between sale proceeds and your cost basis. If you sell that NFT for 5 ETH worth $20,000, your gain is $20,000 minus $6,100 basis = $13,900 taxable gain (minus any selling fees like marketplace commissions).
π° Complete NFT Purchase & Sale Example
| Step | Transaction | Tax Calculation |
|---|---|---|
| 1. Buy ETH | Purchase 2 ETH at $2,000 each = $4,000 | ETH cost basis: $4,000 |
| 2. Buy NFT | Pay 2 ETH (now worth $6,000) + $100 gas | ETH gain: $6,000 - $4,000 = $2,000 |
| 3. NFT Basis | NFT acquired | NFT cost basis: $6,000 + $100 = $6,100 |
| 4. Sell NFT | Sell for 5 ETH worth $20,000 (minus 2.5% fee) | Proceeds: $20,000 - $500 = $19,500 |
| 5. Total Tax | — | NFT gain: $19,500 - $6,100 = $13,400 |
Total taxable gains: $2,000 (ETH) + $13,400 (NFT) = $15,400
Marketplace fees reduce your net proceeds. OpenSea's 2.5% fee, Blur's optional fees, and creator royalties are all deducted from your sale price when calculating gain. Keep records of all fees paid as they directly reduce your tax liability.
Failed transactions still have tax implications for the gas fees spent. While you don't acquire the NFT, you've disposed of ETH to pay the gas fee. This is typically a small capital gain or loss on the ETH used, plus you can't add the gas to any NFT cost basis.
Trading NFT for NFT is a taxable exchange. You dispose of the first NFT at fair market value, recognize gain or loss, and acquire the second NFT with a basis equal to its fair market value. Both NFTs must be valued at the time of trade.
Burning an NFT may create a capital loss if the NFT had value. If you burn an NFT you paid $5,000 for, you can claim a $5,000 capital loss (subject to IRS scrutiny if the NFT truly has no remaining value). Document the burn transaction and any market evidence of worthlessness.
Holding period starts when you acquire the NFT, not when you acquired the ETH used to buy it. If you bought ETH in 2024 and used it to buy an NFT in 2025, the NFT's holding period starts in 2025. The ETH disposition uses the ETH's holding period for determining short-term vs long-term treatment.
π° NFT Transaction Tracking
Tools to track NFT purchases, sales, and tax obligations.
π️ NFT Creator Tax Obligations
NFT creators face different and often higher tax obligations than collectors. When you create and sell NFTs as a business activity, your income is treated as self-employment income subject to both income tax and self-employment tax.
The distinction between hobby and business significantly impacts your taxes. If you create NFTs regularly with profit intent, the IRS considers it a business. Business income is reported on Schedule C and subject to self-employment tax. Hobby income goes on Schedule 1 without SE tax but also without expense deductions.
Self-employment tax adds 15.3% on top of your income tax rate. This covers Social Security (12.4%) and Medicare (2.9%). On $100,000 of NFT sales income, you'll owe approximately $15,300 in SE tax before any income tax calculations.
Primary sales (first sale of your created NFT) are ordinary income, not capital gains. You don't get the benefit of long-term capital gains rates on your own creations. The proceeds minus your cost basis (gas fees, creation costs) equals your taxable ordinary income.
π️ NFT Creator Tax Comparison
| Classification | Tax Treatment | SE Tax? | Deductions? |
|---|---|---|---|
| Business Creator | Ordinary income (Schedule C) | Yes (15.3%) | Yes - All business expenses |
| Hobby Creator | Other income (Schedule 1) | No | No (post-2017 tax law) |
| Collector (buying/selling) | Capital gains | No | Basis + selling expenses only |
Source: IRS Schedule C Instructions | IRC Section 1402
Business creators can deduct ordinary and necessary expenses. This includes software subscriptions (Photoshop, Procreate), hardware (drawing tablets, computers), marketplace fees, gas fees for minting, marketing costs, home office expenses, and education related to your NFT business.
Quarterly estimated tax payments are required for creators with significant income. If you expect to owe $1,000 or more in taxes, you must make quarterly payments or face underpayment penalties. Plan for both income tax and self-employment tax when calculating estimates.
Consider forming an LLC or electing S-Corp status if your NFT income is substantial. An LLC provides liability protection. S-Corp election can reduce self-employment taxes by allowing a reasonable salary/distribution split. Consult a tax professional for your specific situation.
Track all income in USD at the time of receipt. If you receive 5 ETH for an NFT sale and ETH is worth $3,000, your income is $15,000 regardless of what happens to ETH's price afterward. The later sale of that ETH is a separate capital gains event.
Collaborations and splits add complexity. If you create an NFT with another artist and split proceeds 50/50, each of you reports your share as income. Get written agreements and document splits clearly for tax reporting purposes.
π️ Self-Employment Tax Resources
IRS guidance for self-employed individuals and business owners.
π Royalties & Secondary Sales
NFT royalties represent ongoing income earned by creators when their NFTs are resold on secondary markets. This passive income stream creates continuous tax obligations that must be tracked and reported throughout the year.
Royalties are taxed as ordinary income when received, not as capital gains. Each royalty payment is taxable at your ordinary income tax rate. If you're operating as a business, self-employment tax also applies to royalty income.
The fair market value at receipt determines your taxable income. If you receive 0.5 ETH in royalties when ETH is worth $3,500, your income is $1,750. Track each royalty payment with the date, amount in crypto, and USD value at that moment.
Royalty rates typically range from 2.5% to 10% of secondary sale prices. A creator with 5% royalties on a collection that trades $1,000,000 in secondary volume earns $50,000 in taxable ordinary income. This adds up quickly for successful collections.
π Royalty Income Tax Example
| Month | Royalties Received (ETH) | ETH Price | Taxable Income (USD) |
|---|---|---|---|
| January | 2.5 ETH | $3,000 | $7,500 |
| February | 1.8 ETH | $3,200 | $5,760 |
| March | 3.2 ETH | $2,800 | $8,960 |
| Q1 Total | 7.5 ETH | — | $22,220 |
Each payment valued at ETH price on receipt date | Approximately $3,400 SE tax on Q1 royalties alone
Marketplace royalty changes have impacted creator income. Many platforms now make royalties optional for buyers, reducing actual royalty receipts. Track only royalties actually received, not expected royalties based on your set percentage.
The crypto received as royalties establishes a new cost basis. When you eventually sell that ETH, you'll calculate capital gains based on the value when received (your basis) versus the sale price. This creates additional tax events separate from the royalty income itself.
Consider converting royalties to stablecoins or fiat regularly if you need the funds for taxes. Holding volatile crypto received as royalties creates risk. You owe taxes based on value when received, but if the crypto drops 50%, you still owe the original tax but have less value to pay it.
Royalty splits between collaborators require clear documentation. If two creators split 5% royalties 60/40, track each person's share separately. Each creator reports their portion as income on their own tax return.
International royalties may involve additional complexity. If you're a US taxpayer receiving royalties from international marketplaces, the income is still taxable. Foreign tax credits may apply if foreign taxes are withheld, though this is rare for NFT royalties.
π Track Your Royalties
Use on-chain tools to monitor royalty payments across marketplaces.
π NFT Record Keeping Requirements
Proper record keeping is essential for NFT tax compliance. The IRS requires documentation supporting every transaction reported on your tax return. NFTs present unique challenges because transactions occur across multiple marketplaces and blockchains with varying levels of built-in record keeping.
For each NFT acquisition, document the date of purchase, amount of crypto paid, USD value at time of purchase, gas fees paid, marketplace used, and transaction hash. This information establishes your cost basis for calculating future gains or losses.
For each NFT sale, record the date of sale, amount of crypto received, USD value at time of sale, marketplace fees paid, creator royalties paid, and transaction hash. The difference between sale proceeds and cost basis equals your taxable gain or loss.
Screenshots provide valuable backup documentation. Screenshot your wallet before and after transactions, marketplace sale confirmations, and any email receipts. These serve as secondary evidence if blockchain records become difficult to interpret.
π NFT Record Keeping Checklist
| Information | Purchase | Sale | Royalty |
|---|---|---|---|
| Date & Time | ✓ | ✓ | ✓ |
| Crypto Amount | ✓ | ✓ | ✓ |
| USD Value | ✓ | ✓ | ✓ |
| Gas Fees | ✓ | ✓ | — |
| Marketplace Fees | — | ✓ | — |
| Transaction Hash | ✓ | ✓ | ✓ |
| NFT Contract Address | ✓ | ✓ | ✓ |
Retain records for at least 7 years per IRS Topic 305
Use crypto tax software that supports NFT tracking. Platforms like CoinTracker, Koinly, and TaxBit can import NFT transactions from major marketplaces and wallets. These tools automate USD value lookups and cost basis calculations.
Export marketplace data regularly. OpenSea, Blur, and other platforms provide transaction history exports. Download these records monthly or quarterly rather than waiting until tax season. Platforms can change, shut down, or modify historical data access.
Blockchain explorers serve as permanent records. Etherscan, Polygonscan, and other explorers store transaction data indefinitely. Transaction hashes link to complete details including exact timestamps, amounts, and gas fees. Use these as your source of truth.
Organize records by tax year in a clear folder structure. Create folders for "2025 NFT Purchases," "2025 NFT Sales," "2025 Royalties," and "2025 Supporting Documents." This organization makes tax preparation efficient and audit response straightforward.
Retain records for at least seven years per IRS guidelines. The standard audit period is three years, but it extends to six years for substantial understatement and indefinitely for fraud. Seven years provides adequate protection for most situations.
π Related Articles from legalmoneytalk
➡️ Crypto Wash Sale Rules 2026
➡️ Crypto New Year Tax Resolutions 2026
➡️ January Crypto Tax Checklist 2026
❓ FAQ
Q1. Are NFTs really taxed at 28%?
A1. Potentially, yes. The IRS has indicated art-based NFTs may be classified as collectibles subject to the 28% maximum long-term capital gains rate. This is higher than the 20% max rate for typical crypto like Bitcoin. Short-term gains are taxed at ordinary income rates regardless.
Q2. Is minting an NFT a taxable event?
A2. Minting your own creation is generally not taxable. The gas fees become part of your cost basis. Taxation occurs when you sell the minted NFT. However, minting someone else's NFT (like a free mint) may be taxable income if the NFT has value at receipt.
Q3. How are NFT royalties taxed?
A3. Royalties are taxed as ordinary income when received, valued in USD at that moment. If you operate as a business, self-employment tax (15.3%) also applies. The crypto received establishes a new cost basis for future capital gains calculations.
Q4. What if I bought an NFT and it's now worthless?
A4. You can claim a capital loss, but you typically need to dispose of the NFT first. Selling for minimal value or burning the NFT establishes the loss. Keep evidence that the NFT has no remaining market value if challenged by the IRS.
Q5. Do I owe taxes when buying an NFT with ETH?
A5. Yes, the ETH disposal is taxable. If your ETH appreciated since purchase, you realize capital gains when spending it on the NFT. Your NFT cost basis equals the ETH's fair market value at purchase time plus gas fees.
Q6. Are gaming NFTs treated as collectibles?
A6. Unclear. The IRS look-through approach examines what the NFT represents. Gaming items that function as in-game assets rather than art may not be collectibles. However, no definitive guidance exists. Consider conservative treatment until clarified.
Q7. Can I deduct NFT losses against regular income?
A7. Capital losses first offset capital gains. Excess losses up to $3,000 annually can offset ordinary income. Remaining losses carry forward to future years. Collectible losses specifically offset collectible gains before applying to other capital gains.
Q8. Do I need to report NFTs I received for free?
A8. If the NFT had value when received (airdrops, giveaways, promotions), it's taxable as ordinary income at fair market value. If it had no discernible market value, you may report zero income with zero cost basis. Document your valuation reasoning.
⚠️ Disclaimer
This article is for informational purposes only and does not constitute tax, legal, or financial advice. NFT taxation is an evolving area with limited IRS guidance. Tax treatment may vary based on specific facts and future regulatory developments.
Consult with a qualified CPA, tax attorney, or other licensed professional before making any tax-related decisions. The author and publisher are not responsible for any errors, omissions, or actions taken based on this information.
Sources: IRS Notice 2023-27 | IRS Notice 2014-21 | IRC Section 408(m) | IRS Publication 550
Last Updated: December 25, 2025 | Author: Davit Cho | LinkedIn: linkedin.com/in/davit-cho-crypto
νκ·Έ: NFT Tax, Collectibles Tax, 28 Percent Rate, NFT Creator Tax, NFT Royalties, Digital Art Tax, NFT Capital Gains, IRS NFT, NFT Record Keeping, Crypto Art Tax
