How are NFTs taxed in the US?

NFTs are taxed as property by the IRS. Buying, selling, minting, gifting, or trading NFTs each have specific tax consequences. Some NFTs are classified as collectibles under §408(m) — those have a maximum 28% long-term capital gains rate instead of the usual 20%.

Do you pay tax when minting an NFT?

You pay tax on the ETH used to mint (it is a disposal of the ETH at FMV). You also have a cost basis in the new NFT equal to mint price + gas fees in USD. No income event from the mint itself unless you are the creator selling it.

Are NFTs subject to the 28% collectibles rate?

IRS Notice 2023-27 announced that some NFTs may be classified as collectibles under §408(m), subject to the 28% long-term rate cap. This applies to NFTs whose underlying right is a collectible (digital art, memorabilia). NFTs representing other rights (utility, governance) likely follow normal capital gains rates.

Can I deduct NFT losses?

Yes — capital losses on NFTs offset capital gains. Up to $3,000 net loss can offset ordinary income; remainder carries forward. Worthless NFTs (project rugged) require demonstration of total worthlessness, which is harder than for traditional securities.

NFT Tax Guide 2025 — Mint, Trade, Sell, 28% Collectibles Rate

NFTs are property under US tax law, but several details make them more complex than fungible crypto: the §408(m) collectibles classification, mint-as-disposal-of-ETH, royalty income for creators, and the rugpull/worthlessness deduction problem.

The four NFT tax events

1. Minting

When you mint an NFT (typically paying ETH to a smart contract), two things happen for tax purposes:

The ETH you spent is a disposal. If ETH appreciated since you bought it, you owe capital gains tax on that ETH-side gain.
Your new NFT has a cost basis equal to the USD value of ETH paid (mint price) plus gas fees.

Example: You acquired 1 ETH for $1,500. You mint an NFT for 0.5 ETH when ETH is $3,000.

Disposal of 0.5 ETH at $3,000 FMV = $1,500 proceeds. Cost basis $750. Gain $750.
NFT cost basis: $1,500 (mint price) + $40 gas = $1,540.

2. Buying an NFT on a marketplace

Same as minting — paying ETH/wETH for the NFT is a disposal of that ETH. Cost basis of the new NFT = USD value paid + gas + marketplace fees.

3. Selling an NFT

Sale proceeds (in ETH or USDC, valued at USD FMV) minus cost basis = capital gain or loss. Holding period determines short-term vs long-term.

For collectible NFTs held more than 1 year, the long-term rate is capped at 28% (not 20%). See §408(m) discussion below.

4. Trading NFT for NFT

A like-kind exchange. The IRS does not recognize §1031 like-kind exchange for personal property post-2018, so an NFT-for-NFT trade is two simultaneous disposals at FMV.

The §408(m) collectibles question

IRS Notice 2023-27 (March 2023) introduced uncertainty by stating the IRS "intends to issue guidance" treating some NFTs as collectibles under Internal Revenue Code §408(m), which lists "any work of art, any rug or antique, any metal or gem, any stamp or coin... or any other tangible personal property" as collectibles for retirement-account purposes.

Why this matters:

Long-term capital gains on collectibles are capped at 28% maximum rate (vs 20% for non-collectibles)
Collectibles cannot be held in IRAs (technically — practical workarounds exist)

The Notice uses a "look-through" analysis: the underlying right represented by the NFT determines collectibility. NFTs representing:

Digital art, music, photography, memorabilia → likely collectibles (28% cap)
Utility access (gym membership tokenized, software license) → likely not collectibles
Governance / DAO voting rights → likely not collectibles
Real-estate fractional ownership → not collectibles

As of April 2026, formal regulations have not been published. Practical filing position: treat clearly artistic NFTs (PFP collections, generative art, music NFTs) as collectibles when sold at long-term gain > 20% bracket — it's the more conservative position.

NFT royalties (creators)

If you mint and sell NFTs as a creator and program a royalty (e.g. 5% on secondary sales), royalty receipts are ordinary income at USD FMV when received. They are not capital gains, regardless of the holding period of the original NFT.

Track each royalty payment to your wallet by the date received and the ETH-USD rate at that moment.

Worthless NFTs (rugpulls)

If a project rugs and the NFT loses all value, can you claim a capital loss? Yes — but you need to demonstrate worthlessness:

Floor price near zero on the marketplace (typically < $1 for many months)
Project social media abandoned (Twitter, Discord deleted)
Smart contract abandoned or rugged

The IRS has not issued specific NFT-worthlessness guidance. The closest analogous rule is for worthless securities (§165(g)) — prove no market and no reasonable expectation of value.

Conservative approach: sell to a friend for $1 to crystallize a clean disposal (with tax-loss harvesting), rather than claiming "abandonment."

Gas fees — when can you deduct them?

Gas fees are part of the transaction cost:

On acquisition (minting, buying): added to NFT cost basis
On sale: reduces sale proceeds
On failed transactions / approvals: harder. Conservative: capitalize into next acquisition.

Software for NFT tax tracking

NFT tax tracking is one of the harder problems in crypto tax software. Both Koinly and CoinLedger handle ERC-721 and ERC-1155 NFTs natively, including:

OpenSea, Blur, LooksRare, Magic Eden marketplace transactions
Mint events from major collections
Royalty receipts to creator wallets
FMV pricing at the moment of each event

For NFT-heavy portfolios (creators, full-time NFT traders), TokenTax offers a white-glove tier that handles unusual cases manually — collectible classification, abandoned projects, marketplace-specific quirks.

Common NFT tax mistakes

Not reporting the ETH disposal at mint/buy. #1 most-overlooked event. Even simple OpenSea purchases have an ETH-side gain.
Forgetting royalty income. Creator royalties are ordinary income, not capital gains.
Wrong cost basis on transferred NFTs. Moving an NFT between your own wallets does not reset basis.
Treating collectible NFTs at 20% LT rate. If your bracket is > 20%, the cap is 28% for collectibles — you owe more, not less.
Trying to deduct rugpull losses without documentation. Set a clean disposal date with a $1 sale to crystallize the loss.

NFT Tax Guide 2025 — US