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NFT Tax and Accounting: Creator Income, Collector Capital Gains, Collectible Rate Risk

By The Ledgerism Editorial Team · The Ledgerism Brief Editorial Team produces original, methodology-disclosed accounting and tax research—data trackers, databases, and reference guides built to be the most-cited source in the field. Every figure is verified against primary sources including FASB, the IRS, the PCAOB, NASBA, the AICPA, and state boards of accountancy.

NFT tax accounting splits along two roles: the creator who mints and sells, and the collector who buys and resells. The creator recognizes ordinary income on a primary sale and royalty income on secondary sales. The collector recognizes capital gain or loss, with a real risk that the 28 percent collectibles rate under IRC Section 408(m) applies.

What is an NFT and why does the role matter?

A non-fungible token is a unique cryptographic token on a distributed ledger that points to a specific item, often digital art, collectibles, music, in-game assets, or a certificate of ownership. Unlike bitcoin or ether, each NFT is one of a kind, which is the feature that drives almost every difference in its tax and accounting treatment.

The same NFT is taxed very differently depending on who holds it. A creator who mints and sells is in the business of producing property and recognizes ordinary income, much like an artist selling a painting. A collector who buys an NFT as an investment recognizes capital gain or loss on resale. Royalties paid to the original creator on secondary sales add a third stream. For the broader digital-asset framework, see our crypto tax accounting guide.

A point that trips up many holders is that the mint itself can be a taxable event. Minting an NFT typically requires paying a gas fee in crypto, and if the buyer also pays the mint price in appreciated crypto, that payment is a disposition of the crypto used. So even before any resale, acquiring an NFT with appreciated ETH realizes gain on the ETH. The character analysis then layers on top: the creator’s side, the collector’s side, and the royalty stream each follow their own rules. Keeping the creator and collector analyses separate from the start prevents the common error of applying capital-gain treatment to what is really creator business income.

The tax treatment

For the creator, proceeds from a primary sale of a self-created NFT are ordinary income. If the creator mints and sells with continuity and a profit motive, the activity is a trade or business and the net income is subject to self-employment tax under IRC Section 1402. A creator who occasionally mints as a hobby reports the income but cannot use the favorable business-expense rules, given the hobby-loss limits of IRC Section 183. Secondary-sale royalties paid to the creator through the NFT’s smart contract are ordinary royalty income when received.

For the collector, an NFT is property. Selling or exchanging it is a disposition under IRC Section 1001, producing capital gain or loss equal to amount realized minus basis. Holding more than one year yields long-term capital gain; one year or less yields short-term gain taxed at ordinary rates. Using one NFT or crypto to buy another is itself a taxable exchange.

The sharpest issue for collectors is the collectibles rate. IRC Section 408(m) defines collectibles to include works of art, gems, metals, antiques, and similar tangible items, and long-term gain on collectibles is taxed at a maximum rate of 28 percent rather than the standard long-term capital gains rates. IRS Notice 2023-27 announced that the IRS intends to determine whether an NFT is a collectible using a look-through analysis: if the NFT’s associated right or asset is a collectible, such as a gem or a work of art, the NFT is treated as a collectible. An NFT associated with a non-collectible, such as a right to use virtual land, would not be.

The look-through is more subtle than it first appears because Section 408(m) refers to tangible items, and an NFT’s associated asset is often a digital file rather than a physical object. The notice asks for comment on exactly this point: whether a digital work of art is a work of art for Section 408(m) purposes. The interim position the IRS describes treats the NFT as a collectible if the associated right or asset would be a collectible under the statute, which suggests a digital artwork can pull the NFT into collectible status. Until regulations finalize, a collector with a meaningful long-term gain on an art-backed NFT should plan for the possibility of the 28 percent rate and document the nature of the associated asset to support whatever position is taken.

The rate only bites on long-term gain. Short-term gain on any NFT, collectible or not, is taxed at ordinary rates, so the collectibles question is moot for a holding of one year or less. And the 28 percent figure is a maximum rate, so a taxpayer whose ordinary rate is below 28 percent does not pay more than that ordinary rate on the gain. The planning consequence is that the collectibles classification matters most to high-income collectors holding art-backed NFTs for more than a year.

The accounting treatment (ASU 2023-08 exclusion)

ASU 2023-08 added ASC 350-60 for fair-value accounting of crypto assets, but NFTs are excluded. The scope criteria in ASC 350-60-15-1 require the asset to be fungible. An NFT is by definition non-fungible, so it fails this criterion and is outside ASC 350-60. The public-company rollout of the fair-value standard, and its NFT exclusion, is documented in our 2026 FASB ASU 2023-08 adoption tracker.

Because NFTs are excluded from ASC 350-60, an entity holding an NFT continues to apply the general intangible-asset model under ASC 350-30: the NFT is recorded at cost and tested for impairment, with impairment losses recognized but no upward remeasurement to fair value. This produces the same asymmetric, impairment-only result that ASU 2023-08 removed for fungible crypto. An entity in the business of selling NFTs it creates would instead treat them as inventory or as a cost of producing revenue under the relevant revenue standard.

The impairment model for an NFT held as an indefinite-lived intangible requires testing whenever events or changes in circumstances indicate the carrying amount may not be recoverable, and at least annually. For an illiquid NFT, measuring fair value to test impairment is itself difficult: there may be no active market, recent comparable sales may be sparse, and the quoted floor price of a collection may not reflect the specific token’s traits. The result is significant measurement uncertainty, which the entity discloses. If the NFT has a finite useful life, for example a token granting access for a fixed term, it is amortized over that life rather than tested as an indefinite-lived asset.

A creator that mints NFTs to sell faces a revenue-recognition question under ASC 606. The performance obligation is typically satisfied at the point the NFT transfers to the buyer, so revenue is recognized at the sale. Where the smart contract entitles the creator to ongoing secondary-sale royalties, those royalties are recognized as the secondary sales occur, because the amount and timing depend on future buyer behavior outside the creator’s control. The creator does not recognize the future royalty stream up front.

Creator vs collector: NFT tax treatment comparison

Worked example

Assume a digital artist mints an NFT artwork and sells it for $20,000 in a primary sale. The artist mints regularly with a profit motive, so the activity is a trade or business.

• Creator primary sale: $20,000 of ordinary income, subject to self-employment tax under IRC Section 1402, less deductible business expenses such as platform fees and software.
• The buyer is a collector who pays $20,000, establishing a $20,000 basis under IRC Section 1012.
• Eighteen months later the collector sells the NFT for $50,000. Gain equals $50,000 minus $20,000, or $30,000 of long-term capital gain because the holding period exceeds one year.
• The underlying asset is a work of art, so under the Notice 2023-27 look-through, the NFT is a collectible and the $30,000 long-term gain is taxed at the 28 percent maximum collectibles rate rather than the standard 20 percent top long-term rate.
• The original artist receives a 10 percent secondary royalty, $5,000, which is ordinary royalty income to the creator.

The example shows three taxpayers and three characters from one chain of events: ordinary business income to the creator, long-term collectibles gain to the collector, and ordinary royalty income back to the creator. A collector whose NFT pointed to virtual land instead would avoid the 28 percent rate and use standard long-term rates. Where an NFT is inherited, the basis step-up rules in our Section 1014 step-up in basis guide apply to the heir.

Recent guidance (IRS rulings, Rev. Procs., FASB updates)

IRS Notice 2023-27, issued March 21, 2023, is the key NFT-specific guidance. It announced that the IRS intends to issue regulations treating certain NFTs as collectibles under IRC Section 408(m) using a look-through analysis tied to the NFT’s associated right or asset, and requested public comment. Until final regulations are issued, the notice describes the interim approach the IRS intends to apply.

The general property treatment traces to Notice 2014-21, which established that convertible virtual currency, and digital assets generally, are property for federal tax purposes. The basis-tracking regime of Rev. Proc. 2024-28 applies to digital assets, requiring account-by-account tracking effective January 1, 2025, although the unique nature of each NFT makes per-asset basis straightforward in practice.

Form 1099-DA reporting reaches NFT marketplaces that meet the digital-asset broker definition, so collectors should expect proceeds reporting on secondary sales executed through covered platforms. Because each NFT is unique, basis identification does not raise the lot-selection issues that fungible coins do; the collector simply matches the cost of the specific token sold against its proceeds. The practical recordkeeping challenge is capturing the full cost basis, which includes the purchase price plus marketplace fees and the gas cost paid to mint or transfer, all of which are part of basis under IRC Section 1012.

On the accounting side, ASU 2023-08 explicitly leaves NFTs outside ASC 350-60 because they are not fungible, so the prior ASC 350-30 model continues to apply to NFTs held by an entity.

One open question the IRS has flagged is the treatment of fractionalized NFTs, where ownership of a single NFT is divided into fungible tokens. If the fractional interests trade as fungible units with no enforceable claim to underlying goods, they may begin to resemble the fungible crypto assets that fall within ASC 350-60 for accounting and that lack the unique-asset character of a whole NFT for tax. The collectibles look-through under Notice 2023-27 would still depend on the nature of the underlying asset. Practitioners encountering fractionalized NFTs should analyze both the tax character and the accounting model from first principles, because the simple whole-NFT analysis may not carry over. Documentation of the specific rights each fractional token conveys is the foundation for any defensible position.

Common pitfalls

• Assuming all NFT gains use standard capital gains rates. Under IRC Section 408(m) and Notice 2023-27, an NFT tied to a collectible can be taxed at the 28 percent maximum rate.
• Treating creator income as capital gain. Proceeds from selling a self-created NFT are ordinary income, and a trade or business owes self-employment tax under IRC Section 1402.
• Overlooking royalty income. Secondary-sale royalties routed to the creator are ordinary royalty income when received.
• Ignoring crypto-for-NFT exchanges. Buying an NFT with appreciated crypto is a taxable disposition of that crypto under IRC Section 1001.
• Applying ASU 2023-08 fair value to NFTs. NFTs fail the fungibility criterion in ASC 350-60-15-1 and remain under ASC 350-30 cost-less-impairment.
• Failing the hobby-versus-business test. A casual minter under IRC Section 183 cannot deduct losses against other income the way a genuine business can.
• Not documenting the look-through. The character of the underlying asset drives the collectibles determination, so the associated right or asset must be documented.

Frequently asked questions

How is an NFT taxed when I sell it as a collector?

As capital gain or loss under IRC Section 1001. Long-term gain may be taxed at the 28 percent collectibles rate if the NFT points to a collectible under Notice 2023-27.

Is creating and selling NFTs ordinary income?

Yes. A creator recognizes ordinary income on a primary sale, plus self-employment tax under IRC Section 1402 if the minting is a trade or business.

What is the 28 percent collectibles rate?

IRC Section 408(m) taxes long-term gain on collectibles at a maximum 28 percent. Notice 2023-27 applies a look-through to decide whether an NFT is a collectible.

Are NFTs covered by ASU 2023-08?

No. NFTs are not fungible, so they fail the ASC 350-60-15-1 criteria and remain under the ASC 350-30 cost-less-impairment model.

How are NFT royalties taxed?

Royalties paid to the original creator on secondary sales are ordinary royalty income when received.

Does buying an NFT with crypto trigger tax?

Yes. Spending appreciated crypto to buy an NFT is a taxable disposition of that crypto under IRC Section 1001.

How do I know if my NFT is a collectible?

Look through to the associated asset. If it is a work of art, gem, or similar item, Notice 2023-27 treats the NFT as a collectible; if it is, for example, virtual land, it is not.

What is my basis in an NFT I bought?

The amount paid, including the fair market value of any crypto used, under IRC Section 1012.