NFTs aren’t random art you can ignore on taxes. They’re considered capital assets under IRS rules. Whether you mint one, trade one, or receive royalties, there's a taxable event to report. This guide explains how capital gains tax, ordinary income, self-employment tax, and sales tax may apply. You’ll learn how to track costs, use crypto tax software, and file the correct forms. By the end, you’ll know how to report NFT sales, reduce your tax liability, and avoid headaches with the IRS.
Key Takeaways
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Selling or trading NFTs usually triggers a capital gains tax event.
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Creators may owe ordinary income tax and self-employment tax.
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Track cost basis, fair market value, and gas fees carefully.
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Utilize crypto tax software or consult a tax professional to ensure compliance.
Are NFT Sales Taxable in 2025?
Yes. Selling or exchanging NFTs usually creates a taxable event. That means you may owe capital gains tax on any profit.
Why NFTs Are Taxed Like Property
The IRS treats NFTs as capital assets—similar to stocks or real estate. You don’t just get a free pass because it’s digital. If you dispose of an NFT—sell it, trade it, use it to pay for services—you’ve triggered a capital gains event. You’re required to report NFT sales on your tax return and pay taxes if you profit.
When Taxes Apply
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Selling NFTs: If you sell an NFT for ETH or fiat currency, the sale triggers a tax on any profit above your cost basis.
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Trading NFTs: Exchanging one NFT for another counts as a sale plus a purchase—you're taxed on gains.
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Using NFTs: Paying with an NFT for goods or services equals selling it. That’s taxable, too.
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Burning NFTs: Even if you burn a token, you’ve disposed of it—report any gain or loss.
Reasoning Behind the Rule
The IRS wants consistent tax treatment across asset classes. Digital makes no difference. That’s why crypto taxes and NFT taxes follow the same rules.
Impact on NFT Investors
If you’re trading NFTs, both gains and losses must be tracked. That affects your taxable income. You need to keep records of what you paid, what you sold for, and the fair market value at each point.
Capital Gains from Selling NFTs
Tax is based on profit—the difference between what you paid and what you sold it for.
Short-Term vs Long-Term Gains
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Short-term capital gains: NFTs held 12 months or less. These are taxed at your ordinary income tax rate, which can be as high as 37%.
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Long-term capital gains: NFTs held longer than a year get lower capital gains tax rates—typically 0%, 15%, or 20%, depending on your adjusted gross income.
Holding longer can save you money. That extra time could reduce your tax liability.
How to Calculate Gains
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Find your cost basis: money spent to acquire NFT, including gas fees and minting costs.
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Find your sale price: what you received, converted to USD at the time.
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Compare: Sale price minus cost basis = capital gain or loss.
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Classify: Short-term or long-term based on the holding period.
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Report: List each transaction on Form 8949, then summarize on Schedule D.
Example
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You buy an NFT for 0.5 ETH (worth $1,000, including gas).
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You sell six months later for 1 ETH (worth $2,200).
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Capital gain: $2,200 – $1,000 = $1,200.
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Because you held it for under a year, it’s a short-term gain. That $1,200 is added to your taxable income and taxed at your income tax rate.
Reporting Gains and Losses
You must report each gain or loss separately. If you sold many NFTs, that can add up. A crypto tax software can automate this and help calculate your overall capital gains and losses for the year.
Offsetting Gains with Losses
If some NFTs lose value, you can use those losses to offset capital gains. If losses exceed gains, you can deduct up to $3,000 against other income per year. Any remaining loss carries forward.
When NFT Sales Are Considered Ordinary Income
Not all NFT activity triggers a capital gain. Some forms of income are taxed as ordinary income, which can carry higher rates and may also be subject to self-employment tax. Here's how it works.
Who Pays Ordinary Income Tax?
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Frequent creators: If you mint NFTs often and sell them like an art business, the IRS may view your earnings as ordinary income. That means you report them on Schedule C, not Schedule D. You may also owe self-employment tax.
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Services paid via NFTs: If someone pays you with NFTs for your work—like site design or consulting—that’s income. The value of the token at receipt is part of your taxable income. You report it when you receive it, not when you sell.
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Royalties: Many NFTs pay creators a royalty on each resale. Those funds are considered ordinary income, not capital gains, in the year received.
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Mining or staking via NFTs: If you mint new tokens as a reward, that's treated as income too. You pay at your normal income tax rate based on the fair market value when it's awarded to you.
Why It Matters
Capital gains are taxed differently from ordinary income. Long-term gains can be as low as 0–20%, while ordinary income rates range up to 37%. Pay attention if you're regularly minting, trading, or earning. The tax difference can be significant.
Example: The Artist Who Turns Digital Art into Business
Carrie mints and sells 50 art NFTs in a year, paying gas each time. NFT auctions earn her $100,000 in crypto, which she sells for fiat shortly after. The IRS could treat that as running a small business:
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$100,000 goes on Schedule C
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She deducts business costs—like gas fees and software
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She uses fair market value at receipt
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She pays ordinary income tax + self-employment tax
If she reported it as capital gains, that might understate taxes. Classifying it correctly matters.
Calculating Capital Gains from NFT Sales
If you sell or trade an NFT, that’s a capital gains tax event. The amount you owe depends on how much you gained, how long you held the asset, and your overall tax bracket.
What You Need to Know
You calculate a capital gain or loss like this:
Fair Market Value (when sold or traded) – Cost Basis (when bought) = Capital Gain or Loss
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If you made money, it’s a capital gain.
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If you lost money, it’s a capital loss, which might help reduce your tax bill.
The IRS expects you to calculate this for every taxable NFT transaction you’ve made.
How Cost Basis Works
Your cost basis is what you paid for the NFT. This includes:
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The purchase price (in USD or crypto)
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Any gas fees incurred during the transaction
Example:
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You buy an NFT for $600.
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You pay $50 in gas fees.
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Your total cost basis is $650.
If you later sell it for $1,000, you have a capital gain of $350.
If you trade NFTs, the same rule applies: use the fair market value of the NFT you received to calculate whether you had a gain or loss.
Short-Term vs. Long-Term Capital Gains
The holding period matters:
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If you held the NFT under 12 months, you’ll owe short-term capital gains tax, taxed at your regular income tax rate.
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If you held it over 12 months, it qualifies for long-term capital gains — taxed at 0%, 15%, or 20% depending on your adjusted gross income.
Holding NFTs longer can reduce your tax liability.
Losses and Deductions
If you sold an NFT at a loss, you may be able to offset capital gains from other investments. If your total losses exceed gains, you can deduct up to $3,000 of capital losses from your taxable income each year.
This is where the NFT losses tax-deductible becomes useful. Accurate tracking lets you use these losses to reduce what you owe.
Use Software or Spreadsheets
Manually tracking crypto transactions and NFT activity can be messy. A good crypto tax software will track:
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Fair market value on sale dates
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Cost basis
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Gas fees
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Capital gains and losses
This helps simplify your return and avoid mistakes.
Reporting NFTs on Your Tax Return
Once you’ve calculated your NFT gains, you need to report them. The IRS expects NFT traders, creators, and investors to disclose their taxable events, crypto income, and capital gains.
Here’s how to do it.
Use Form 8949
This form is where you log each NFT sale or trade that involved a capital asset:
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Date you acquired the NFT
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Date you sold/traded it
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Your cost basis
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The fair market value at the time of the sale or swap
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Your gain or loss (in USD)
Each NFT sale gets its own line on Form 8949. You then summarize the totals on Schedule D, which is where the IRS looks to find your total capital gains or losses for the year.
Use Schedule 1 or C for Income
Not all NFT activity goes on Form 8949.
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If you earned crypto through NFT royalties or services paid in NFTs, that’s ordinary income.
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If this income isn’t related to a business, you report it on Schedule 1 of your tax return.
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If you run a business—like selling art NFTs—you’ll report the income on Schedule C, and you might owe self-employment tax too.
IRS Form 1040 Includes Digital Asset Disclosure
In 2025, all taxpayers must answer a question on Form 1040: “Did you receive, sell, or dispose of any digital assets?” NFTs are included.
Even if you didn’t earn anything, you still need to say “yes” if you:
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Traded an NFT
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Sold one
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Received one as payment
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Burned or gifted one
If you answer “no” and should’ve said “yes,” you could face penalties or worse if the IRS finds out.
What If You Don’t Get a 1099?
NFT platforms don’t always send tax forms, but you’re still responsible for reporting. The IRS doesn’t care if you didn’t get a 1099. You still need to report NFTs sold or received and pay any tax owed.
This includes:
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NFT royalties (if you’re a creator)
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Payments received in NFTs
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NFT trades that triggered capital gains
If the IRS later finds unreported taxable events, you may owe interest or penalties.
Real Example
If Jordan sold three NFTs:
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One earned $500 (held under a year → short-term gain)
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One lost $300 (held over a year → long-term loss)
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One was received as payment for design work ($800 fair market value → ordinary income)
He needs to:
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Report the two sales on Form 8949 and Schedule D
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Report the $800 income on Schedule 1 or Schedule C (depending on whether it’s business-related)
Are NFT Gas Fees Taxed?
Gas fees are what you pay to process transactions on the blockchain. If you buy, sell, mint, or transfer an NFT, you probably paid gas. And yes — they matter for taxes.
When Gas Fees Are Deductible
You can’t claim gas fees as a separate tax deduction, but they can adjust your cost basis. That means they affect your capital gain or loss when you sell an NFT.
Let’s say:
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You buy an NFT for $200
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You pay $30 in gas fees
Your total cost basis is $230. If you sell the NFT for $400 later, your capital gain is $170 — not $200.
This helps lower your taxable gain, and in turn, your tax bill.
If you sell an NFT and also pay gas, the gas fee can reduce your proceeds from the sale. So it works both ways — gas fees affect both what you paid and what you received.
When Gas Fees Are Not Deductible
You can’t always include gas fees. If you pay gas to transfer an NFT to your wallet or between wallets you control, that’s not a taxable event, and you can’t write off the fee. The same goes for failed transactions — if you paid gas but the transaction didn’t go through, there’s usually no capital gains tax event, and the fee isn’t deductible.
Gas fees only matter for tax purposes when they’re tied to a taxable action — buying, selling, or minting.
How to Track Gas Fees
Most wallets don’t clearly label gas fees in a way that works for taxes. So you’ll need to:
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Check your transaction history
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Look at Etherscan or another explorer
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Add gas fees to your cost basis manually or with crypto tax software
If you miss this, you might overpay capital gains tax.
NFT Losses and Tax Deductions
Not every NFT makes money. Sometimes a project fails, the art drops in value, or the token becomes worthless. These NFT losses can sometimes help you save on taxes — but only under the right conditions.
When NFT Losses Are Tax Deductible
If you sold an NFT for less than you paid, that’s a capital loss. The IRS lets you use these losses to offset capital gains from other investments — including crypto, stocks, and even other NFTs.
Example:
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You bought an NFT for $1,000
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You sold it later for $300
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That’s a $700 capital loss
You can use that to lower your taxable capital gains. If your losses are more than your gains, you can deduct up to $3,000 of taxable income each year. Anything over that rolls forward into the next year.
So yes — NFT losses are tax-deductible, but only if you sold the NFT. Just holding a “dead” NFT in your wallet doesn’t count. You need to actually sell it or prove that it became worthless and had no market.
What If You Can’t Sell the NFT?
Sometimes there’s no buyer. If the project disappears or nobody wants it, you may not be able to sell. In rare cases, the IRS might let you write it off if the asset has no fair market value and is truly worthless. But it’s tricky.
You’d need to show:
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There’s no active marketplace
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The NFT can’t be sold
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It has no resale value
That’s hard to prove and risky. Some people send NFTs to a burn address to “dispose” of them, but the IRS hasn’t clearly said this counts as a capital loss. If you’re trying to claim this, talk to a tax professional first.
Track Your Losses
To claim tax deductions on NFT losses, keep good records:
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Purchase date and price
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Sale date and price
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Gas fees paid
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Screenshots or links if it was worthless or delisted
How to Report NFTs on Your Tax Return
If you made money from NFT sales, or even just traded a few, the IRS wants to know. You need to report them when you file your tax return. It’s not optional — even if you didn’t get a 1099.
Start with Form 8949
Form 8949 is used to report every capital gains tax event. That includes:
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Selling an NFT for crypto
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Trading one NFT for another
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Swapping an NFT for a different digital asset
You’ll need to include:
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The date you acquired the NFT
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The date you sold or disposed of it
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The cost basis (what you paid, including gas fees)
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The fair market value when you sold it
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The resulting gain or loss
Each NFT sale or swap goes on its line in Form 8949. At the bottom, your totals get moved to Schedule D, which summarizes your total capital gains and losses.
Report NFT Income Separately
If you created NFTs and earned money selling them, that might count as ordinary income, not capital gains. The same goes for getting an NFT through airdrops, play-to-earn games, or as payment for services. That income belongs on Schedule 1 or Schedule C, depending on how you earned it.
If it’s part of a business or freelance activity (like being a digital artist), you probably need to use Schedule C and may owe self-employment tax. If it were a one-off sale, Schedule 1 might be enough.
Don’t Forget State Taxes
Many states tax capital gains, and some may also tax digital assets as tangible personal property. If you live in a state with income tax, your NFT gains or income will likely count. Sales tax may also apply in rare cases, especially if you’re selling to others as a business. It depends on local laws.
If you're unsure how your state views non-fungible tokens (NFTs), check with a tax attorney or tax professional.
The Role of Crypto Tax Software for NFT Investors
Tracking NFT transactions across wallets and marketplaces isn’t easy. You’ve got mints, airdrops, gas fees, trades, and sales. If you do it by hand, you’re probably going to miss something. That’s where crypto tax software helps.
What These Tools Do
Most crypto tax software connects to your wallets and exchanges. It pulls in your NFT sales, purchases, and swaps. Then it calculates your capital gains, cost basis, and whether your holding period qualifies for short-term or long-term capital gains rates.
They can:
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Track the fair market value on the sale date
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Adjust your cost basis for gas fees
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Flag taxable events and NFT income
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Separate capital gains from ordinary income
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Fill out Form 8949, Schedule D, and Schedule C
Some tools also offer help with tax loss harvesting — spotting NFTs that lost value so you can sell and offset gains.
When You Need It
If you bought or sold more than a few NFTs, or you used multiple wallets and marketplaces, you should probably use tax software. Manual tracking gets messy, fast. Even more so if you also hold other crypto assets or participate in DeFi.
For creators, it helps organize income and expenses for tax purposes, especially if you’re claiming tax deductions for gas, platform fees, or contract development.
Choosing the Right Tool
Not all platforms support NFTs. Look for software that can handle:
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NFT tax reporting
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Ethereum-based and Solana-based NFTs
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High transaction volumes
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Custom cost basis edits
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Exportable tax forms
Some top tools include CoinLedger, Koinly, and ZenLedger. Many let you preview your tax liability before you pay for the final report.
Using Crypto Tax Software for NFTs
Crypto tax software helps keep NFT records clean. If you mint, buy, or sell NFTs often, manually tracking everything is hard. You’d need to log each sale, every gas fee, and the fair market value at the time of the transaction. That’s a lot.
These tools pull data from your wallets. They track cost basis, NFT sales, NFT gas fees, and any capital gains or losses. They separate ordinary income (like airdrops or creator royalties) from capital gains (from selling an NFT). Then, they generate the right tax forms for your tax return.
Most NFT investors use tools like:
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CoinLedger – imports wallet and exchange data
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Koinly – suitable for NFTs, crypto taxes, and DeFi
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ZenLedger – helps with NFT tax reporting and self-employment income
You don’t need to be a tax expert to use these tools. Just connect your wallets, let it track your NFT transactions, and export the reports for tax season.
What Happens If You Don’t Report NFT Taxes?
If you made money from NFTs and didn’t report NFTs on your tax return, that’s a problem. The IRS sees NFTs as digital assets, and they treat most NFT transactions as taxable events. That means you either made capital gains, crypto income, or both.
Here’s what can happen if you don’t file:
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Late penalties if you owe and don’t file
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Interest charges on unpaid tax liability
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Bigger problems if they see it as tax evasion
Starting in 2025, brokers may issue Form 1099-DA. That makes it easier for the IRS to match wallet activity to your name. Even if you didn’t get a form, you still need to report income from NFTs.
They’re not just watching centralized platforms. You’re also expected to report sales or swaps from wallets and NFT marketplaces that don’t issue forms. If you minted and sold NFTs, or earned through gaming or royalties, that’s still taxable income. The IRS doesn’t forget, and interest adds up fast.
If you missed a year, you can make up for it. Amend your tax return and pay what you owe. It’s better than waiting for a letter.
Why You Should Work with a Crypto Tax Professional
NFT taxes are confusing. Between figuring out if something’s ordinary income or a capital gain, tracking gas fees, and filling out the proper tax forms, it’s easy to make mistakes. If you're trading often, minting your NFTs, or dealing with DeFi, your taxes get even more complex.
A crypto tax professional can help. They know how to handle digital assets, how to read Form 8949, and how to apply current tax rules to your situation. They also know what the IRS is watching for—and how to keep you in the clear.
Here’s how we help:
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Make sure you don’t miss any taxable events
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Calculate your cost basis and fair market value correctly
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Claim allowed deductions, including gas fees and NFT losses
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Handle self-employment income if you’re a creator
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Review your return for red flags that could trigger an audit
They also save you time. If you have lots of NFT transactions, it’s better to get help than to risk filing it wrong.
At Count On Sheep, we specialize in crypto tax reporting. Whether you’re flipping NFTs, staking tokens, or building in DeFi, we help you report it right—without the stress.
Book a free consultation with our crypto tax team today and get your NFT taxes squared away before the IRS comes asking.
FAQs – NFT Taxes in 2025
Do I have to pay taxes on NFT sales?
Yes. Selling an NFT is a taxable event. You may owe capital gains tax if you made a profit.
What tax rate applies to NFTs?
If you held the NFT for under a year, it’s taxed as short-term capital gains, using your ordinary income tax rate. If you have had it for over a year, long-term capital gains rates apply, which are lower.
Are gas fees tax-deductible?
Yes. Gas fees paid during minting, selling, or trading can be added to your cost basis. That reduces your gain and your tax bill.
What if I created and sold my own NFTs?
That’s ordinary income. If it’s your business, you may owe self-employment tax, too. Use Schedule C to report that income and claim any tax deductions.
Can I offset NFT losses?
Yes. You can offset capital gains with NFT losses. If your total losses exceed gains, you can deduct up to $3,000 from your taxable income each year.
Do I need to report NFTs if I didn’t get a 1099?
Yes. You still need to report NFTs and any crypto income, even if you didn’t receive a form.
Are NFTs considered capital assets?
Most NFTs are capital assets, like stocks or crypto. But if you create and sell NFTs, that’s self-employment income, not a capital gain.
Do I owe sales tax on NFTs?
Maybe. It depends on state law. Some states may treat NFTs as tangible personal property, which means sales tax could apply.
Is crypto tax software required?
No, but it helps. It tracks NFT sales, handles fair market value calculations, and fills out tax forms like Form 8949. It’s beneficial if you have a lot of activity.
What happens if I don’t report my NFTs?
You may face IRS penalties, interest, or even tax evasion issues. Reporting crypto transactions accurately helps you avoid problems.
