Creating and selling NFTs has become a legitimate income stream for digital artists worldwide. But here is what most creators miss: the IRS treats your NFT sales as self-employment income, not just capital gains. This means you are potentially facing a combined tax rate of over 50% when you add federal income tax, state tax, and the dreaded 15.3% self-employment tax together.

I have been tracking NFT taxation since the early days of CryptoPunks and Bored Apes. What I have learned is that most creators focus on the art while ignoring the tax implications until it is too late. The difference between a creator who plans ahead and one who does not can be tens of thousands of dollars in unnecessary taxes. This guide breaks down exactly how your NFT income is taxed and what you can do to minimize your burden legally.

🎨 NFT Creator Tax Basics — When Art Becomes Income

When you create and sell an NFT, the IRS sees you as a business owner, not an investor. This distinction matters enormously for your tax bill. Investors who buy and sell NFTs pay capital gains tax, which maxes out at 28% for collectibles held over a year. But creators pay ordinary income tax on every sale, which can reach 37% at the federal level alone.

The moment you mint an NFT with the intention to sell it, you have started a business in the eyes of the IRS. It does not matter if you sold one piece for 0.1 ETH or a collection for 100 ETH. Your creative work generates self-employment income, and that comes with additional tax obligations that casual investors never face.

Here is what trips up most creators: minting itself is not a taxable event. You can create as many NFTs as you want without owing taxes. The tax obligation triggers when someone buys your work. At that moment, the fair market value of the crypto you receive becomes taxable income. If you receive 2 ETH when ETH is trading at $3,000, you have $6,000 in ordinary income regardless of whether you convert it to dollars.

The classification as a creator versus collector also affects how losses are treated. If your NFT business has a bad year, you can deduct those losses against other income. Hobby losses, on the other hand, are severely limited. The IRS looks at factors like profit motive, time spent, and business-like conduct to determine which category you fall into.

🎨 Creator vs Collector Tax Comparison

Category	Tax Type	Max Rate	SE Tax
NFT Creator	Ordinary Income	37%	15.3%
NFT Collector	Capital Gains	28%	None
Hobby Seller	Ordinary Income	37%	None

📌 Not sure if you qualify as a creator or collector?

The IRS has specific criteria for business classification. Check the official guidance to understand where you stand.

🔍 Check IRS Self-Employed Guidelines

💰 Primary Sales — Your First NFT Sale Tax Treatment

Your primary sale is the first time your NFT sells after you mint it. This is where most of your tax planning should focus because primary sales are taxed as ordinary income at your marginal rate. If you are in the 32% federal bracket and live in California, you could be looking at a combined rate approaching 50% before self-employment tax even enters the picture.

The taxable amount is the fair market value of the cryptocurrency you receive at the moment of sale. Marketplace fees and gas costs reduce your gross income. For example, if you sell an NFT for 5 ETH when ETH is $3,000, your gross proceeds are $15,000. If OpenSea takes a 2.5% fee ($375) and gas costs $50, your net taxable income is $14,575.

One thing I always tell creators: document everything the moment it happens. Write down the exact time of sale, the ETH price at that moment, the transaction hash, and all associated fees. Trying to reconstruct this data months later during tax season is a nightmare. Use a crypto tax tool like CoinTracker or Koinly to automate this tracking.

Dutch auctions and reserve auctions create additional complexity. The taxable event occurs when the sale finalizes, not when you list the NFT. If you list at 10 ETH and it sells three weeks later at 5 ETH when ETH has dropped 20%, you use the ETH price at settlement, not at listing. This timing can work for or against you depending on market conditions.

💰 Primary Sale Tax Calculation Example

Item	Amount
Sale Price	5 ETH × $3,000 = $15,000
Marketplace Fee (2.5%)	-$375
Gas Fee	-$50
Net Taxable Income	$14,575
Federal Tax (32%)	$4,664
SE Tax (15.3%)	$2,230

📊 Need help tracking your NFT sales automatically?

Compare the top crypto tax software options for 2026 to find the best fit for creators.

🔍 Best Crypto Tax Software 2026

🔄 Royalties — How Secondary Sales Are Taxed

Royalties are the passive income dream for NFT creators. Every time your NFT resells on a secondary market, you get a percentage, typically 5-10%. But here is what makes royalties tricky for taxes: each royalty payment is a separate taxable event, and they all get taxed as ordinary income plus self-employment tax.

If your collection is popular and trading actively, you could receive dozens or even hundreds of royalty payments per year. Each one needs to be tracked with its own fair market value calculation at the time of receipt. This is where automated tracking becomes essential rather than optional.

The royalty landscape changed significantly in 2023-2024 when major marketplaces started making creator royalties optional. Blur initially launched with zero creator fees, and OpenSea followed with optional royalties. This means your projected royalty income may be lower than expected, but whatever you do receive remains fully taxable.

For tax planning, treat royalties as unpredictable income. Set aside 40-50% of every royalty payment for taxes immediately. Do not wait until year-end to calculate what you owe. If you receive significant royalties, you will likely need to make quarterly estimated tax payments to avoid penalties.

🔄 Royalty Income Tax Breakdown

Monthly Royalties	Annual Total	Est. Tax (45%)
$500/month	$6,000	$2,700
$2,000/month	$24,000	$10,800
$10,000/month	$120,000	$54,000

💼 Self-Employment Tax — The Extra 15.3% You Must Know

Self-employment tax is the silent killer of NFT creator profits. When you work a regular job, your employer pays half of your Social Security and Medicare taxes. When you are self-employed, you pay both halves. That is 12.4% for Social Security (up to $168,600 in 2025) and 2.9% for Medicare, totaling 15.3%.

This tax applies to your net self-employment income after deductions. So if you earned $100,000 from NFT sales and had $20,000 in deductible expenses, you pay SE tax on $80,000, which comes out to $12,240. Add federal income tax on top, and you can see why tax planning is critical.

There is a small consolation: you can deduct half of your SE tax from your adjusted gross income. This does not reduce the SE tax itself, but it lowers your income tax slightly. On $80,000 of SE income, you would deduct $6,120 from your AGI.

High earners face an additional 0.9% Medicare surtax on earned income above $200,000 (single) or $250,000 (married filing jointly). If your NFT income pushes you into these brackets, factor in the extra tax when planning your quarterly payments.

💼 Self-Employment Tax Calculation

Net SE Income	SE Tax (15.3%)	Deductible Half
$50,000	$7,650	$3,825
$100,000	$15,300	$7,650
$168,600	$25,796	$12,898

📋 Learn more about self-employment tax obligations

The IRS provides detailed guidance on calculating and paying SE tax.

🔍 IRS Self-Employment Tax Guide

📝 Deductible Expenses — What Creators Can Write Off

Deductions are your best weapon against the high tax rates NFT creators face. Every dollar you deduct saves you roughly 45-52 cents in combined federal, state, and SE taxes. The key is knowing what qualifies and documenting everything properly.

Gas fees are your most obvious deduction. Every transaction you make on Ethereum or other blockchains costs gas, and these are ordinary business expenses. This includes minting costs, listing fees, and even failed transactions. Save those transaction hashes and calculate the USD value at the time of each transaction.

Hardware and software directly related to your NFT creation are deductible. Drawing tablets, computers, design software subscriptions, and cloud storage all count. If you use equipment for both personal and business purposes, you can deduct the business-use percentage. Keep a log if the IRS ever questions it.

Home office deduction applies if you have a dedicated space for your NFT work. Calculate the square footage of your workspace as a percentage of your home, and apply that percentage to rent, utilities, and internet costs. The simplified method allows $5 per square foot up to 300 square feet ($1,500 max).

📝 Common NFT Creator Deductions

Expense Category	Examples	Deductible
Gas Fees	Minting, listing, transfers	100%
Software	Photoshop, Procreate, Blender	100%
Hardware	Tablet, computer, monitor	Business %
Marketing	Twitter ads, Discord Nitro	100%
Home Office	Rent, utilities, internet	Space %
Education	Courses, conferences	100%

📅 Quarterly Estimated Taxes — Avoid Penalties

If you expect to owe more than $1,000 in taxes for the year, the IRS requires you to pay estimated taxes quarterly. Miss these payments and you face penalties plus interest. The due dates are April 15, June 15, September 15, and January 15 of the following year.

Calculating quarterly payments is tricky when your NFT income fluctuates wildly. The safe harbor rule says you avoid penalties if you pay at least 100% of last year's tax liability (110% if your AGI exceeded $150,000). Alternatively, pay 90% of what you expect to owe this year.

I recommend the annualized income installment method if your income varies significantly by quarter. This lets you pay less in quarters when you earn less, rather than spreading payments evenly. Form 2210 Schedule AI documents this calculation.

Use Form 1040-ES to make your quarterly payments. You can pay online through IRS Direct Pay, EFTPS, or by credit card. Keep records of every payment date and amount. Late payments accrue penalties from the due date, not from when you file your return.

📅 2026 Quarterly Tax Deadlines

Quarter	Income Period	Due Date
Q1	Jan 1 - Mar 31	April 15, 2026
Q2	Apr 1 - May 31	June 15, 2026
Q3	Jun 1 - Aug 31	September 15, 2026
Q4	Sep 1 - Dec 31	January 15, 2027

💳 Ready to make your quarterly payment?

Pay directly to the IRS online through their secure payment system.

💰 IRS Direct Pay

❓ FAQ

Q1. Do I owe taxes when I mint my own NFT?

A1. No, minting is not a taxable event. You only owe taxes when someone buys your NFT. The gas fees you pay to mint become part of your deductible business expenses.

Q2. How are NFT royalties taxed?

A2. Royalties are taxed as ordinary income at your marginal rate (up to 37%) plus self-employment tax (15.3%). Each royalty payment is a separate taxable event based on the fair market value when received.

Q3. Can I avoid self-employment tax on NFT income?

A3. If you create and sell NFTs regularly with profit intent, SE tax applies. Forming an S-Corp can reduce SE tax on profits above reasonable salary, but consult a tax professional before making this election.

Q4. What if I collaborate with another artist on an NFT?

A4. Each collaborator reports their share of the income on their own tax return. If you split 50/50, each person reports 50% of the sale as income. Document your agreement in writing.

Q5. Do I need to file Schedule C for NFT income?

A5. Yes, if you create NFTs as a business rather than a hobby. Schedule C reports your gross income, deductible expenses, and net profit. The net profit flows to your Form 1040 and Schedule SE.

Q6. Can I deduct the value of NFTs I give away for free?

A6. You cannot deduct the fair market value of NFTs you create and give away. However, if you purchase NFTs to give as promotional items, those purchases may be deductible as marketing expenses.

Q7. What records should I keep for NFT creator taxes?

A7. Keep transaction hashes, sale prices in crypto and USD, dates and times, gas fees, marketplace fees, wallet addresses, and screenshots of listings. Retain records for at least seven years.

Q8. What happens if I do not pay quarterly estimated taxes?

A8. The IRS charges an underpayment penalty, currently around 8% annually. The penalty accrues from each quarterly due date. Use the safe harbor rules to avoid penalties even if you underpay slightly.

📚 Related Articles

📄 NFT Tax Guide 2026 — Collectibles 28% Rate Explained

📄 Crypto Staking Taxes 2026 — How Staking Rewards Are Taxed

📄 1099-DA Crypto Tax Form 2026 — First Year Guide

📄 IRS Crypto Audit Red Flags 2026 — How to Avoid Getting Flagged

📄 Best Crypto Tax Software 2026

⚠️ Disclaimer

This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws vary by jurisdiction and change frequently. Consult a qualified tax professional for advice specific to your situation. The author and publisher are not responsible for any actions taken based on this information.

Last Updated: December 27, 2025 | Sources: IRS Publications, IRS Self-Employed Tax Center, Schedule C Instructions

NFT Tax Guide 2026 — Collectibles 28% Rate Explained

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

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.

🎨 NFT Tax Quick Facts 2026

💎 Collectibles Rate: Up to 28% for long-term gains

📊 Short-Term Rate: Ordinary income (up to 37%)

🖌️ Creator Income: Self-employment tax applies (15.3%)

👑 Royalties: Taxed as ordinary income when received

🎨 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.

🎨 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.

📚 NFT Tax Official Guidance

IRS guidance on NFT and digital asset taxation.

📖 IRS Notice 2023-27 - NFT Collectibles

📖 IRS Virtual Currency FAQ

💎 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.

💎 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.

📜 IRC Section 408(m) - Collectibles Definition

💰 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).

💰 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.

💰 NFT Transaction Tracking

Tools to track NFT purchases, sales, and tax obligations.

📊 Best Crypto Tax Software 2026

🖌️ 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.

🖌️ 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.

🖌️ Self-Employment Tax Resources

IRS guidance for self-employed individuals and business owners.

📖 IRS Self-Employed Tax Center

📝 Schedule C Instructions

👑 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.

👑 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.

👑 Track Your Royalties

Use on-chain tools to monitor royalty payments across marketplaces.

🔍 Etherscan - Track Wallet Transactions

📋 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.

📋 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.

📚 Related Articles from legalmoneytalk

➡️ Crypto Wash Sale Rules 2026

➡️ Crypto New Year Tax Resolutions 2026

➡️ January Crypto Tax Checklist 2026

➡️ Best Crypto Tax Software 2026

➡️ IRS Crypto Audit Red Flags 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

태그: 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

Translate

Translate

💡 Hot Blog Picks — Best Insights at a Glance

NFT Creator Taxes 2026 — Royalties & Self-Employment 🎨

NFT Creator Taxes 2026 — Royalties & Self-Employment 🎨

📋 Table of Contents

⚡ Quick Facts 2026

📖 Official IRS Guidance

🎨 NFT Creator Tax Basics — When Art Becomes Income

🎨 Creator vs Collector Tax Comparison

💰 Primary Sales — Your First NFT Sale Tax Treatment

💰 Primary Sale Tax Calculation Example

🔄 Royalties — How Secondary Sales Are Taxed

🔄 Royalty Income Tax Breakdown

💼 Self-Employment Tax — The Extra 15.3% You Must Know

💼 Self-Employment Tax Calculation

📝 Deductible Expenses — What Creators Can Write Off

📝 Common NFT Creator Deductions

📅 Quarterly Estimated Taxes — Avoid Penalties

📅 2026 Quarterly Tax Deadlines

❓ FAQ

📚 Related Articles

⚠️ Disclaimer

NFT Tax Guide 2026 — Collectibles 28% Rate Explained

NFT Tax Guide 2026

📋 Table of Contents

🎨 NFT Tax Basics — How NFTs Are Taxed

🎨 NFT Tax Event Summary

💎 The 28% Collectibles Tax Rate

💎 NFT Collectibles Rate vs Standard Capital Gains

💰 Buying & Selling NFT Tax Events

💰 Complete NFT Purchase & Sale Example

🖌️ NFT Creator Tax Obligations

🖌️ NFT Creator Tax Comparison

👑 Royalties & Secondary Sales

👑 Royalty Income Tax Example

📋 NFT Record Keeping Requirements

📋 NFT Record Keeping Checklist

❓ FAQ

DeFi Users Beware: IRS Form 8949 Mismatch = Automatic Audit in 2026