NFTs are taxed when there’s a disposition – meaning you sold or traded the asset for money, crypto, or another NFT.
Common taxable NFT events:
● Selling an NFT for ETH or another crypto
● Swapping one NFT for another
● Using an NFT in a play-to-earn game and receiving rewards
● Receiving crypto or cash as a royalty (if you’re a creator)

Notably, buying an NFT is not taxable, but the sale later on is.

Not all NFT earnings are taxed the same. Here’s the breakdown:
‍For Buyers/Sellers:
If you buy and later sell an NFT, it’s usually a capital gain or loss, based on the difference
between your cost and your sale price.
● Short-term (held less than 1 year) → taxed at your income rate
● Long-term (held more than 1 year) → taxed at capital gains rates

For Creators:
If you minted and sold the NFT yourself, your profits are treated as ordinary income, not capital
gains. That means:
● Report income when the NFT is sold
● If you receive ongoing royalties, those are also ordinary income

NFT creators may also owe self-employment tax depending on income levels.

Gas fees can significantly affect your cost basis – and they are deductible in most cases.
Here’s how to treat them:
● If you paid gas when purchasing or minting an NFT, add that to your cost basis
● If you paid gas during the sale, you may subtract it from the proceeds
● Keep transaction receipts, wallet logs, or screenshots to support deductions

Every dollar you track helps reduce your taxable gain.

NFT income flows to a few key IRS forms:
● Capital gains/losses → Report on Form 8949 and Schedule D
● Royalty or creator income → Report on Schedule C
● Airdrops or play-to-earn rewards → Report as other income on Schedule 1, Line 8z
● Answer “Yes” to the digital assets question on Form 1040

Be consistent across forms, especially if you use multiple wallets or platforms.