How Are NFTs Taxed? A Plain-English Guide

NFTs are property, not currency

In the United States, the IRS treats NFTs as property. That means the same framework used for stocks and other crypto generally applies: you have a cost basis (what you paid), and you have a gain or a loss when you dispose of the asset.

Because they're property, simply owning an NFT — even one that has crashed in value — doesn't create a tax event on its own. Something has to happen for a gain or loss to become real.

When a taxable event actually happens

Buying and holding an NFT is not taxable. The taxable moment is when you dispose of it: selling it for cash or crypto, swapping it for a different NFT, or using it to pay for something.

If you dispose of an NFT for less than your cost basis, that difference is a capital loss — and capital losses can offset capital gains, which is the whole point of tax-loss harvesting.

Short-term vs. long-term matters

If you held the NFT for one year or less, a gain is short-term and taxed like ordinary income. Held longer than a year, it's long-term and generally taxed at lower rates.

Losses net against gains of the same character first. One extra wrinkle: some NFTs may be treated as 'collectibles,' which can carry a higher long-term rate — a detail worth confirming with your CPA rather than assuming.

What counts as cost basis

Your basis is generally what it cost you to acquire the NFT: the purchase price or mint price, plus directly related costs like the gas fees to mint or buy it.

A free airdrop or free mint typically starts at a $0 (or gas-only) basis. Reconstructing accurate basis from years of on-chain history — separating what you paid from what was simply sent to you — is the hard, tedious part, and it's exactly what a good tool automates.

Airdrops and free mints

Receiving an NFT for free can be ordinary income equal to its fair market value at the time you receive it, which then becomes your basis. Many airdrops are worth about zero — or are outright spam and scams — so they contribute no real loss.

This is why a serious loss estimate has to strip out spam and junk airdrops first. Counting them as 'losses' would be both wrong and a red flag on a return.

Worthless collections

A wallet full of dead JPEGs isn't automatically a deduction. To claim a loss you generally need a realization event — a sale, an abandonment, or a documented worthlessness claim — not just the fact that the price went to zero.

When a project is genuinely dead, the challenge isn't proving you still hold the NFT. It's proving there was no reasonable opportunity to sell it. That takes evidence, which we cover in a separate guide.

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