NFT taxes are here to stay after many doubts among investors on how Non-Fungible Tokens are taxed in the United States.
If you’re an NFT trader or an NFT creator, there are several crypto tax requirements you should follow. In this guide, we’ll clarify everything from the NFT tax rate in the US to how to report NFT taxes and much more!
- Trading NFTs are taxable in the US, subject to capital gains taxes
- Your NFT tax rate will depend on the holding period of the crypto or NFT you had before selling, with rates ranging from 0% to 37%
- NFT creators are taxed differently than investors, usually subject to income tax rates
- You have to report your NFT gains/losses on your tax return, on Form 8949 and Schedule D, and your NFT income in Schedule 1 or Schedule C of your Income Tax Return.
- Crypto tax software like CoinTracking can help you import your NFT transactions, determine your gains/losses and income, and generate tax reports for you.
What are NFTs?
Non-Fungible Tokens (NFTs) are uniquely identified tokens (non-fungible), meaning they cannot be replicated.
NFTs can be issued on several blockchain networks, with Ethereum being the most popular, while several blockchains, such as Cardano and BSC, are becoming more relevant in the NFT space.
Recently, the Bitcoin network announced a protocol that enables it to issue Bitcoin-based NFTs, called Ordinals, reaching all-time high levels of activity in the network due to this launch.
Do I have to report NFTs on my tax return?
Yes, if you trade NFTs, you would have to report gains/losses in your taxes (in the right tax forms) in the US.
If you trade any crypto for NFTs or vice versa, you’d need to determine the gain/loss on each trade and then report it on Form 8949 and Schedule D of Form 1040.
If you’re an NFT creator, you’d have to report the income you receive from your NFT sales in your US Individual Income Tax return as ordinary income. Learn more about reporting crypto taxes in the US.
NFT tax overview
NFTs are taxed similarly to cryptocurrencies, being subject to capital gains taxes if you’re an investor/trader in the US.
Whereas, if you’re an NFT creator, you’d be taxed at an income level based on the net proceeds (total sales proceeds – costs of creation) of your NFT sales.
NFTs are also reported differently depending on whether you’re just trading crypto/NFTs or creating and selling them. Let’s cover this in more detail.
Taxable NFT transactions
In the US, selling an NFT is a taxable event, regardless if you sell it for another NFT, a cryptocurrency, or FIAT (e.g., USD).
Moreover, if you sell any of your cryptocurrency for an NFT, you’d also have a taxable event, subject to capital gains taxes.
Anytime you sell any of your crypto holdings, from coins to NFTs, you’re taxed in the US.
Non-taxable NFT transactions
There are a few NFT transactions that are not taxable in the US, including:
How are NFTs taxed?
Trading NFTs is a taxable event in the US, subject to capital gains taxes, with your tax rate depending on the holding period of your NFT.
You can be taxed between 0% and 37%, depending on the type of tax rate, every time you sell crypto for an NFT or an NFT for cryptocurrency, another NFT, or FIAT (e.g., USD).
What if you’re an NFT creator? Let’s cover it in more detail.
NFT taxes for creators
NFT creators are taxed differently than NFT investors based on the net proceeds of their NFT creations.
NFT creators should determine the total sales proceeds of their art and deduct the cost associated with their creations.
Finally, NFT creators should report their net proceeds in their Income Tax Returns, alongside any other income they had during the tax year.
If the NFT creator is creating and selling NFTs as a business, they will need to report their NFT sales and deduct associated expenses on Schedule C of their tax return unless they have formed a legal entity, which requires a separate tax return filing.
Taxes on minting an NFT
If you mint an NFT, you can take the cost you paid for doing the minting as your cost basis in the NFT. Minting NFT is not a taxable event in the US, but if you sell the NFT, the realized gain would be subject to capital gains tax. Also, if you pay the minting fee with a crypto, the deemed sale of crypto for NFT would be a taxable event.
Example: Let’s imagine you mint an NFT today and have transaction costs at a value of $100. Two days later, if you sell the NFT for $200, you’d need to report a $100 gain in your income tax return.
Also, if you paid the $100 minting fee in ETH and your cost basis in the ETH is $80, you will need to recognize a $20 capital gain.
Taxes on selling an NFT as a creator
As an NFT creator, you should determine the net proceeds of your NFT sales every time you sell one, deduct the costs related to its creation, and report the net proceeds as income on your tax return.
Example: You sell an NFT today for $2,000, costing you $50 in fees. You’d need to report the $1,950 (net proceeds) in your income tax return as ordinary income.
Taxes on earning royalties on NFTs
If you earn royalties on your NFTs, you should recognize the Fair Market Value (in USD) of each batch of royalties you receive, and that FMV will be added to your income for the tax year.
You should then report all those FMVs in your income tax return.
Example: You received 0.01 ETH in royalties in July 2023. At that time, 1 ETH was worth $1,200. You’d have to report $12 (0.01 ETH * $1,200) in your income tax return.
NFT taxes for investors
NFT investors are taxed at the capital gains level in the US, with rates ranging from 0% to 37%, depending on their holding period.
Taxes on buying an NFT with FIAT
If you’re buying an NFT with FIAT (e.g., USD), you won’t be taxed on that transaction, but that will become your cost basis for when you sell it. Buying crypto or NFTs with FIAT (e.g., USD) are not taxable events in the US.
Taxes on selling an NFT
Every time you sell an NFT for another NFT, cryptocurrency, or FIAT (e.g., USD), you’d get taxed at a capital gains level, with tax rates ranging from 0% to 37%.
If you sell any crypto for an NFT, you’d also have to report its gain/loss in your taxes.