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How are NFTs taxed

A guide to NFT taxes for collectors, creators, and investors

2021 was a big year for NFTs, with Merriam Webster auctioning off its acronym “NFT” in an NFT form for a whopping 15 ETH (nearly $60,000 then.) With all the hype going around NFTs, there is one aspect that was left almost untouched, the federal tax implications of minting or even buying and selling NFTs. Since the IRS hasn’t yet issued any specific guidance when it comes to NFT, how does one report NFT activity on tax returns?

Some NFT-specific activities are not taxable. If you have bought an NFT with cash, minted an NFT, or held a piece of art you created, you do not have to worry about taxes. These are the events that are not taxable, you do not have to report them to the IRS on your tax return.

Buying an NFT with crypto makes you eligible for taxes. Here, you have sold your crypto and bought an NFT, making it taxable. In this case, you have to report capital gains or losses from your sale of crypto.

Money earned from selling NFTs is often categorized as capital gains and taxed like earnings from the sale of more typical capital assets such as property or stocks. How much taxes you need to pay depends on: the amount of time you have held the NFT, the type of NFT, your total annual income, if it was a gain or a loss, etc.