Table of Contents
- What You’ll Need Before You Report NFT Sales
- Step 1: Identify Every Taxable NFT Transaction
- Step 2: Calculating Cost Basis for NFTs
- Step 3: Taxing NFT Royalties as Ordinary Income
- Step 4: Report NFT Sales on Form 8949 and Schedule D
- NFT Collectibles and IRS Notice 2023-27
- Common Mistakes When You Report NFT Sales
- Frequently Asked Questions
Last Updated: September 30, 2026
What You’ll Need Before You Report NFT Sales
Learning how to report NFT sales to the IRS starts with one idea: selling or trading an NFT is a taxable event, and the IRS treats it as a digital asset transaction. This guide from All Digital Tax walks through the whole process, step by step.
Here is what to gather before you start:
- Every wallet address you used during the year
- Full transaction history from each marketplace and wallet
- Purchase records showing what you paid, including fees
- Dates for every buy, sell, trade, and mint
- Records of any royalties or creator payouts you received
The IRS has been clear that digital assets are property for tax purposes. Its digital assets guidance for taxpayers explains that you must report gains and losses when you sell or exchange them. Most people miss at least one wallet or one trade. That gap is where problems start.
Step 1: Identify Every Taxable NFT Transaction
A taxable event happens when you sell an NFT for crypto or cash, trade one NFT for another, or spend an NFT. Buying and holding is not taxable.
Minting is different. When you mint an NFT, you usually create a new asset, so there is no sale yet. But the moment you sell that NFT, the proceeds become taxable. Airdrops count too: the fair market value on the day you receive one is generally ordinary income.
Minting, Airdrops, and Trades
Trades are the ones people forget. Swapping one NFT for another is a disposition, even if no cash changes hands. You report it the same way you would a sale. Build a simple log:
|
Event |
Taxable? |
What to record |
|---|---|---|
|
Buying an NFT |
No |
Cost, fees, date |
|
Minting your own |
Usually no |
Gas fees paid |
|
Selling for crypto |
Yes |
Proceeds, cost basis, date |
|
Trading NFT for NFT |
Yes |
Fair market value of both |
|
Receiving an airdrop |
Yes |
Value on receipt date |
Step 2: Calculating Cost Basis for NFTs
Cost basis is what you paid for the NFT, plus fees. Subtract it from your sale proceeds to get your gain or loss.
Your basis includes the purchase price, gas fees, and platform fees. Keep the holding period in mind: under one year is a short-term gain, taxed as ordinary income.
Gas Fees and Platform Costs
Gas fees are easy to overlook and worth tracking. Fees you pay to acquire or dispose of an NFT generally add to your basis or reduce your proceeds. That lowers your taxable gain.
Step 3: Taxing NFT Royalties as Ordinary Income
Royalties are ordinary income, not capital gains. If you created an NFT and earn a percentage each time it resells, that payout is income in the year you receive it.
Step 4: Report NFT Sales on Form 8949 and Schedule D
NFT sales and trades are reported as digital asset transactions on Form 8949 and carried to Schedule D. Each disposition gets its own line. The columns you fill in are: description of property, date acquired, date sold or disposed of, proceeds, and cost basis. Short-term transactions (held one year or less) go in Part I. Long-term transactions (held more than one year) go in Part II.
Form 1099-DA and Marketplace Reporting
Form 1099-DA is the information return for digital asset transactions. Brokers and marketplaces use it to report gross proceeds to both you and the IRS. You may receive one form, several forms, or none, a peer-to-peer sale or an older marketplace account may not generate one at all.
Step-by-Step 1099-DA Reconciliation
- Collect every 1099-DA. Download each one from the issuing broker or marketplace portal. Note the issuer name and the account it covers.
- Export your own transaction history. Pull the full CSV from each marketplace and wallet for the same tax year.
- Match on transaction ID first. Line up each 1099-DA entry against the matching row in your export using the transaction hash or order ID. This is more reliable than matching on date and amount alone.
- Flag three categories. Mark each 1099-DA line as (a) matched with basis on hand, (b) matched but missing basis, or (c) not found in your records.
- Hunt down missing basis. For category (b), reconstruct what you paid from the original purchase record, the funding wallet, or the marketplace email confirmation.
- Investigate category (c). A 1099-DA line you cannot find usually means a wallet you forgot, a marketplace account you closed, or a transfer you treated as non-taxable. Resolve each one before filing.
- Check for your own transactions the form missed. Peer-to-peer sales, wallet-to-wallet swaps, and sales on platforms that do not issue a 1099-DA still belong on Form 8949 even though no form reports them.
- Document the differences. Keep a short reconciliation note showing why your Form 8949 totals differ from the sum of your 1099-DA forms. If the IRS asks, that note is your explanation.
Once every line is matched or explained, transfer the results to Form 8949, separate short-term from long-term, and carry the totals to Schedule D.
NFT Collectibles and IRS Notice 2023-27
Some NFTs may be taxed as collectibles. IRS Notice 2023-27 states that certain NFTs tied to physical or intangible collectibles can be treated as collectibles for tax purposes. When that applies, a long-term gain can be taxed at a higher rate than a standard long-term capital gain.
Does the Wash Sale Rule Apply to NFTs?
Under current law, the wash sale rule in Internal Revenue Code Section 1091 applies to stock and securities. The IRS treats NFTs and other digital assets as property, not securities, so the rule does not currently apply to NFT losses. Congress has proposed extending it to digital assets, so confirm current law before harvesting losses.
Even without the rule, selling an NFT at a loss and immediately buying back the same NFT can be challenged under the economic substance doctrine if the trade has no purpose other than creating a tax loss.
Common Mistakes When You Report NFT Sales
The biggest mistake is skipping trades. A swap feels like a sideways move, but the IRS sees a sale.
Other common errors:
- Forgetting gas fees when figuring cost basis
- Mixing royalties in with capital gains
- Missing a wallet or an old marketplace account
- Using the sale date value instead of the receipt date for airdrops
- Filing before reconciling the 1099-DA against your own records
Frequently Asked Questions
Are NFTs considered digital assets by the IRS?
Yes. The IRS treats NFTs as digital assets, so selling or trading one is a taxable event that must be reported. You report NFT sales on Form 8949 and carry the totals to Schedule D, just like other digital asset transactions. If you sold an NFT for more than your cost basis, you have a capital gain. If you sold for less, you have a capital loss that may offset other gains.
How do I report NFT royalties on my tax return?
Creators report NFT royalties as ordinary income, not capital gains. Royalties are payments you receive each time your NFT resells on the secondary market. Report them on Schedule C if you are running a business, or as other income on Schedule 1 if it is a one-time project. You may owe self-employment tax on royalty income, so keep a clear record of each payment and the wallet address that received it.
Do I need to report NFT sales if I didn’t make a profit?
Yes. Every NFT disposition must be reported, even at a loss. You list the sale on Form 8949 with your proceeds and cost basis. A loss can offset other capital gains and up to $3,000 of ordinary income per year, with the rest carried forward. Skipping the report because you broke even or lost money leaves a gap between your wallet activity and your return.
How are NFT collectibles taxed compared to other digital assets?
Some NFTs may be taxed as collectibles under IRS Notice 2023-27, which means long-term gains could face a higher rate than standard long-term capital gains. The IRS looks at whether the NFT is tied to a collectible like art or trading cards. If your NFT falls under that category, hold it more than a year and check the collectible rules before you report the sale.
NFT reporting gets messy fast when wallets, marketplaces, and royalties all land in the same year. All Digital Tax helps U.S. crypto investors and creators sort it out before filing, reconciling every wallet and marketplace into a clean, documented record. Start with a crypto review to see exactly what your situation needs.