Non-fungible tokens, or NFTs, have become increasingly popular in a number of different industries, including visual arts, sports, and entertainment, where they are used to create and market digital collectibles. An NFT is a digital certificate of ownership of a virtual or physical asset that may include products, images, music, videos, or other content. Blockchain technology is used to identify and store the asset and track its provenance. Unlike fungible cryptocurrencies, which also use blockchain technology, NFTs are by definition non-fungible, meaning each token is unique. Metadata for storage of an NFT typically includes a unique digital ID, a description of the asset, and a pointer to an off-chain location where the asset is stored.

Video clips of sporting moments and player cards marketed as NFTs have already generated billions in revenue for sports leagues, teams, and individual athletes. Music, lyrics, soundbites, collaborations, and remixes are all popular and lucrative NFT musical products. Music and visual art are being combined to create unique NFT artwork with music incorporated. Video gaming companies are using NFTs to allow users to purchase, trade, and rent out in-game assets. NFTs are also being used to leverage in-demand visual artwork, the most famous example being the Christie’s auction of an NFT of a digital collage by Beeple, which sold for $69 million.

There are many novel legal issues that arise in connection with the minting, marketing, and selling of NFTs. The areas of law affected include, for example, intellectual property and securities; anti-money laundering and bank secrecy; and tax law, which is the subject of this brief summary. While the IRS has issued some guidance on cryptocurrency taxation, it thus far has not specifically weighed in on the taxation of NFTs. What is clear from the cryptocurrency guidance provided by the IRS is that if an NFT is purchased with cryptocurrency, then the purchaser must report a gain or loss on the disposition of the cryptocurrency. So how should the seller of an NFT report it for tax purposes? Well, it depends.

Creator Sales

Because NFTs are intangible assets, the difference between the costs of creating the NFT and the amount received by the creator should be taxed as ordinary income at graduated rates up to 37% federal, plus applicable state income taxes. Sales tax withholding could also apply. Cryptocurrency received by the creator is considered taxable proceeds. If payments for the purchase are made over time, the tax on amounts received in the future could be deferred under the installment sale rules. If an NFT purchaser decides to resell the NFT, the original creator can automatically receive royalties that would be taxable when received.

Dealer Sales

Dealers who buy and sell NFTs in the ordinary course of business should generally recognize ordinary income upon sale because the NFTs are considered inventory. Like NFT creators, dealers are allowed to deduct business expenses in connection with the sale of NFTs, including the costs to acquire the NFTs, and the net gain would be taxed at graduated rates up to 37% federal, plus applicable state income taxes. A loss on the sale of an NFT by a dealer should be deductible against other income. Even more so than the creator, the dealer should be concerned about sales tax withholding issues.

Non-Dealer Sales

If a business purchases an NFT to, for example, promote its products rather than for resale, the business should be able to amortize the cost basis of the NFT but would be required to “recapture” all or a portion of any gain recognized upon a later sale of the NFT as ordinary income. The portion of the sales proceeds not subject to recapture might qualify for long-term capital gains treatment if the NFT were held for more than a year. In such a case, the long-term capital gain, if not offset by other capital losses, would likely be taxed at a maximum tax rate of 20% or 21% depending on the type of business entity. A business loss on the sale of an NFT by a non-dealer not offset by gains from the disposition of other business assets should be treated as an ordinary loss that can be used to offset the taxpayer’s other ordinary income.

Investor Sales

NFTs held for investment rather than in a trade or business should qualify for capital gain or loss treatment upon sale. Short-term capital gains not offset by other capital losses would be taxed at the investor’s highest marginal ordinary income tax rate of up to 37% for an individual. If an investor holds an NFT for more than a year, any gain may be eligible for the preferential long-term capital rate. Although the maximum long-term capital gain is currently 20%, NFTs that are considered collectibles will be likely taxed at a higher 28% tax rate. Some NFTs might not be considered collectibles, and gains from sales of those NFTs would be subject to regular capital gains tax rates. However, regardless of such classification, income from the sale of an NFT held for investment would be treated as net investment income and depending on the taxpayer’s total income could be subject to an additional Medicare surtax of 3.8%.

Personal User Sales

A personal use asset is generally defined as one held neither for use in a trade or business nor for investment. Such assets include those held by individuals for use in a hobby or recreational activity. A taxpayer’s intent should determine whether an NFT is a personal use or investment asset. Gains from the sale of NFTs held for personal use would be taxable as capital gains, perhaps in some cases from the sale of a collectible, but losses on sale would not be deductible. Moreover, if a personal use NFT becomes worthless, the loss would not be deductible. The additional Medicare surtax of 3.8% should not apply to gains from the sale of an NFT held for personal use.


Although the IRS has not yet provided definitive guidance, existing statutory, regulatory, and case law generally provide an adequate framework for determining how to treat the purchase and sale of an NFT for tax purposes. As discussed, the taxation of NFT sales can vary, depending on whether the sale is being made by the creator or other holder and the use of the NFT by the holder. Taxpayers who create, purchase, and/or sell NFTs should obtain advice from a tax professional before filing their tax returns.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Julian A. Fortuna is a partner in Greenspoon Marder’s corporate and business practice group and concentrates his practice on domestic and international tax, business and estate planning, employee benefits, and executive compensation matters. He has substantial experience representing clients in the entertainment, higher education, clean energy, health care, hospitality, nonprofit, manufacturing, retail, and real estate industries.

Eric Galen represents top founders, brands, startups, and creators and leads Greenspoon Marder’s innovation and technology group, where he leverages his unique background of corporate, Web3, media, and entertainment law to help clients succeed. Eric also serves as a member of the firm’s sports and entertainment practice group, as well as its corporate and business practice group.

Gai Sher is senior counsel with Greenspoon Marder’s innovation and technology group and concentrates her practice on representing and advising startups, emerging growth companies, brands, creators, and executives in media, technology, and consumer products in all aspects of commercial transactions. She has experience in deal-making and structuring rights, talent, and production agreements in the podcasting industry and other new media spaces.

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