Introduction to US Taxation of NFTs

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Although sales of non-fungible tokens (NFTs) reached nearly US$21 billion by the end of 2021, making NFTs almost as valuable as the global art market, they are currently completely ignored. by the United States Internal Revenue Service (IRS) in the agency’s statements on the taxation of cryptocurrencies.

An NFT is a unique, digitized certificate (a token) stored on a blockchain. It can be a representation of something tangible, such as a piece of music, or it can be an original creation that only exists in digital form.

NFTs are “smart contracts”; their embedded metadata allows relevant information to be visible and stored on the blockchain in a transparent and immutable way. The token is non-fungible because its metadata cannot be duplicated or replicated: even if multiple replicas are created using the same content, each NFT has unique metadata.

Without specific guidance from the US government, general tax principles should be considered to determine, by analogy, how NFTs are likely to be taxed.


The IRS treats convertible cryptocurrency as property, not currency. Accordingly, the general tax principles applicable to real estate transactions apply to convertible virtual currency. Although Notice 2014-21 (2014-16 IRB 938) and the frequently asked questions updated in March 2019 do not address non-convertible cryptocurrencies or NFTs, it is likely that NFTs are goods to tax purposes.

Real estate transactions are taxed as barter transactions. If the buyer pays for an NFT with “property”, such as a cryptocurrency, the buyer and seller have a taxable transaction for the buyer if the fair market value of the cryptocurrency used to purchase the NFT is greater than the taxpayer’s tax base in that cryptocurrency. The seller has a taxable gain/loss equal to the difference between the seller’s tax base and the value of the property received as payment for the NFT.

If the NFT is purchased with real currency, such as US dollars, the seller has a taxable sale, but the buyer does not. The seller’s gain/loss is the difference between the adjusted tax basis of the NFT and the amount of currency used to buy it.

The taxpayer bears the burden of proving investment intent with respect to NFTs.

If the buyer uses an appreciated property to buy the NFT (i.e. the fair market value of the property used to buy the NFT is greater than the buyer’s tax base), the buyer has a gain taxable equal to the amount of this capital gain. The tax base of the buyer in this property is what is relevant for tax purposes.

loss and gain

The gain or loss is treated as capital or ordinary, depending on whether the taxpayer is an investor or trader (capital), or a creator or merchant (ordinary). Ordinary losses are fully deductible, but capital losses are subject to special loss limits that apply to capital property. Therefore, some capital losses may not be deductible. Additionally, if the taxpayer holds an NFT as a personal asset, the losses may be permanently disallowed under Code Section 183, which prohibits deductions for losses incurred in non-profit activities.

In addition, a taxpayer’s intention to acquire an NFT must be established to determine whether the NFT is a “personal use” asset not held for investment purposes.


Collectibles are a unique category of items subject to a higher tax rate of 28%. NFTs that are similar to collectibles and held for the long-term holding period are subject to the higher rate. Short-term capital gains are subject to the same tax rates that generally apply to fixed assets, whether or not they are treated as collectibles. Losses on the sale of collectibles are subject to loss limits that generally apply to capital assets.

Other types of NFTs, such as those that represent ownership of real assets or provide experiences, may not be classified as collectibles and instead are subject to regular capital gains tax rates.

Personal-use property

The taxpayer bears the burden of proving investment intent with respect to NFTs. A taxpayer’s NFTs would likely be treated as personal-use assets if the taxpayer’s activities are too infrequent to rise to the level of investment activities, or if the taxpayer does not maintain adequate books and records to support a investment intention.


Although the NFT market is too new to make sweeping generalizations, the tax treatment of NFT creators should be fairly straightforward. The minting (the process by which the creator initially registers the NFT on the blockchain) of an NFT should not be a taxable event as it does not result from or represent the sale or exchange of goods. The creator does, however, have a taxable event when the NFT is sold or exchanged for real currency or property, including cryptocurrency or other NFT.

Whether an NFT sale triggers an ordinary or capital gain or loss depends on whether it is an ordinary or capital asset in the hands of the taxpayer. For creators, an NFT is likely to be an ordinary asset in the hands of the taxpayer.

NFT donations are treated like any other non-monetary property contribution.

The creator’s tax base is determined by reference to the creator’s costs and expenses for the creation of the NFT. Ordinary and necessary expenses are deductible if paid or incurred by a taxpayer in carrying on the trade or business of creating and selling NFT, for example, the costs of creating the NFT, adding it to a blockchain or its sale.

The gain or loss is taxable when realized or incurred. This is the amount by which the value of the money or property received in the sale or exchange is greater or less than the amount of the taxpayer’s adjusted tax base.

The rules for calculating the amount of gain or loss are contained in Code § 1001 and the regulations issued under that section. Although NFTs are intangible assets, the tax rules that allow for the amortization of the tax base of certain intangible assets do not apply to creators of intangible assets. Only holders of NFTs who did not create them and who carry out a commercial or commercial activity can amortize the tax base of NFTs.


As non-fungible assets, NFTs are not suitable for most direct charitable contributions. The few charities that are set up to accept cryptocurrency usually convert crypto to fiat currency as soon as possible. They can’t do that with NFTs because they’re not convertible. Direct contributions from valued NFTs can, however, offer donors who are not NFT creators significant tax advantages, so they are worth exploring.

From the donor’s point of view

Donors who can meet IRS reporting requirements can avoid paying tax on the amount of the gain they would otherwise incur had they sold the appreciated NFT in the market and donated the money to the ‘charity. Donors may receive a deduction for the total value of an NFT enjoyed up to the cap as a percentage of their adjusted gross income. This means that the best NFT for a direct charitable contribution is one that has appreciated significantly in value and has been held by a taxpayer classified as an investor for more than a year.

NFT donations are treated like any other non-monetary property contribution. It is therefore more tax efficient for a taxpayer who has incurred a loss in an NFT that is capital property to sell it in the market, declare a capital loss for tax purposes and donate US dollars to the charity to receive a charitable contribution equal to the cash amount donated.

From the point of view of charity

Charities must address several issues before accepting donations of NFTs or cryptocurrency received from the sale of NFTs. They must determine the protocols for accepting NFTs and cryptocurrencies, and the means by which donated digital assets can be converted into US dollars. Additionally, a charity should also become familiar with the unique issues raised by the acceptance, storage, and display of NFTs.


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