How to Report NFT on Taxes: 9 Cases Software Gets Wrong

Here’s how to report NFT on taxes in the US: treat every NFT as property, put each sale, trade, or spend on Form 8949 and carry the totals to Schedule D, and report any NFT you received free as ordinary income at its fair market value on the day it hit your wallet.

Filling out the forms is easy, but the hard part is properly tracking all your NFT trades, NFTfi, or gacha machine pulls. The part that can significantly inflate your capital gains is missing cost basis for NFTs, because they break the pricing assumptions crypto tax tools are built on. There is no reliable price feed for a 1-of-1 JPEG, and bridges, loans, mints and burns all break the cost-basis trail. Missing basis defaults to $0, which maximizes your reported capital gains.

Below are the nine places we see tax software break with NFTs, what the correct treatment looks like in each one, and how to fix it before you file.

The short version

• You report NFT on taxes as property. Selling, trading, or spending one is a disposal reported on Form 8949 and Schedule D. Receiving one as a reward or airdrop is ordinary income at fair market value on the day you got it.
• Buying an NFT with ETH or SOL is also a disposal of that ETH or SOL, which is taxable.
• Crypto tax software has no reliable price feed for NFTs, and floor price wouldn’t fix it anyway, because rarity means two items from the same mint can be worth 20x apart.
• The expensive failures are almost always a missing cost basis caused by: a bridge that dropped the trail, a liquidated NFTfi loan booked at zero, a presale refund the software couldn’t split.
• Missing basis defaults to $0, which maximizes your reported gain. That’s the single most costly assumption in NFT reporting.

What does broken NFT cost basis actually cost you?

A client came to us with $150,000 of capital gains on DeGods and y00ts that he never actually made.

His crypto tax software looked complete. Every wallet he still used was connected. What he’d left out were the Solana wallets he retired after bridging the NFTs off Solana, because a dead wallet with nothing left in it didn’t seem relevant to his taxes. Those were the wallets where he’d paid hundreds of SOL for rare DeGods.

Without them, every NFT in the report had a cost basis of zero. Sell a DeGod for 40 SOL and the software books 40 SOL of pure gain. He’d sold across Solana, Polygon, and Ethereum, so it compounded. Six figures of tax owed on a portfolio that was, in reality, close to flat.

We pulled the retired wallets, rebuilt the purchase history, and carried the basis through every bridge hop. The $150,000 of paper gains came down to about $25,000, which was the real number. Then we did the same thing to his Blend transactions (Blur’s NFT loan platform) and knocked another $50,000 off.

This wasn’t an isolated case, we’ve worked with hundreds of NFT traders and collectors. The amount of innovation and “just try things” that occurred in 2021 & 2022 created a huge amount of complexity.

The nine cases below are the nine places any NFT trader or collector must be aware of to know how to report NFTs on tax.

Past results are historical and specific to that client’s facts. Every file is different.

Are NFTs taxed differently from other crypto?

Mostly no. The IRS treats digital assets as property, and NFTs sit inside that definition. So the rules you already know from how crypto is taxed carry straight over, and most of what you need to report NFT on taxes is familiar ground.

Here’s how the common events land:

What you did	How it’s taxed
Bought an NFT with ETH or SOL	Disposal of the ETH or SOL (capital gain or loss). The NFT takes a cost basis equal to what you paid, plus gas.
Minted an NFT you paid for	Not income. Your mint price plus gas becomes the cost basis.
Received an NFT free (airdrop, reward, payment)	Ordinary income at fair market value on receipt. That value becomes your basis. But determining FMV is tenuous.
Sold an NFT for ETH, SOL, or cash	Capital gain or loss. Short-term under 12 months, long-term over.
Traded one NFT for another	Disposal of what you gave up, at the value of what you received. Practically: a transfer of cost basis.
Created and sold your own NFT art	Self-employment income on Schedule C, not Schedule D. Royalties too.
Moved an NFT between your own wallets	Not taxable.

Where NFTs genuinely diverge is valuation. A token swap has a fair market value you can pull from an API in a second. An NFT trade usually doesn’t have one at all, and that single gap is where all nine of the problems below start.

1. Why doesn’t tax software have a price for my NFT?

Because there isn’t one to have.

ETH is fungible. Every unit is identical, arbitrage keeps the price consistent across venues, and a price feed can tell you what one ETH was worth at 14:32 UTC on a Tuesday with real confidence. NFTs have none of that. Each item is unique by design, which is the entire point of the asset class, and it means there is no single market price to look up.

No crypto tax software we’ve used has real floor-price or last-sale feeds for NFT collections. And even if one did, floor price would still be the wrong number. A 1-of-1 trait combination doesn’t sell anywhere near the cheapest listing in the collection. A Hoodie Crypto Punk could sell for 10x a floor Punk, and no automated tool is pricing that difference correctly.

As a result, most crypto tax software just treats NFT values as 0, or derives them from the value of the tokens being traded for them. So any NFTs received outside a direct trade on the same transaction hash will have inflated gains. And any NFT sold will have 0 value, and artificially high losses which could lead to penalties and interest in an audit.

2. How are NFT staking rewards and reward tokens taxed?

Reward tokens are ordinary income at fair market value when you receive them, and almost no crypto tax software automatically tags them that way on its own.

During the 2021 and 2022 run, a lot of projects bolted staking onto their NFTs. You’d lock the NFT into a contract and earn a fungible token for holding. DeGods paid DUST. Plenty of others did the same thing under different tickers.

Two failures show up here, and we see both constantly.

First, the staking transaction itself often gets coded as a sale of the NFT. It isn’t. You still own the asset, you sent it to a contract you control the exit from, and that’s a non-taxable transfer. Left uncorrected, the software will usually book a loss on the NFT which might sound good.

But when you get the NFT back it has no cost basis and the holding period resets to 0 days. If you sell it you now have a short term capital gain, even if you held the NFT over 1 year. The difference in tax you pay could be a factor of 2x or worse if you would have qualified for 0% long term capital gains rate.

Second, the reward token frequently had no price feed at all, so the tool never categorized it as income. It just appeared in the wallet as an untracked balance. Someone has to manually establish what DUST was worth on each accrual date and book it as ordinary income.

Some NFT rewards tokens never had a price feed that crypto tax software can pull from, so this might be an impossible task. Practically, if the tokens were disposed of in the same year, the tax paid as short term capital gains would be at the same rate as the income tax. So any assessable penalties or interest might be near nil anyway.

Then it gets more complex, because these reward tokens usually had utility. Sometimes you could stake them (see the first problem), others could be used for raffles (could be taxed as gambling), and others were used to buy utility like trading bot access (could be a deduction if itemizing or TTS).

This requires you to do some onchain investigation into each of the transactions involving the fungible token for an NFT ecosystem to make sure it is correctly tagged in your tax software.

And you need to discuss with your tax advisor the specific circumstances of any transactions that could be considered gambling, or if purchasing utility is deductible on your tax return.

3. How do you report an OTC or multi-item NFT trade?

You match the legs by hand and assign value from the side of the trade you can actually price.

OTC NFT deals rarely look like a clean one-for-one swap. They involve multiple items, often a fungible token to balance the value, and sometimes a trusted third party who holds both sides and passes them along. That last one is the killer for automated tools, because on-chain it looks like you sent assets to a stranger and later received unrelated assets on a different transaction hash. No tool links those.

Here’s how it works in practice. Say you trade three common NFTs for one rare piece:

• Common A: you paid 8 SOL.
• Common B: you paid 11 SOL.
• Common C: you paid 6 SOL.
• You receive one rare. There’s no recent comparable sale for that exact trait set, so there is no independent market price to use.

The workable approach is to total the basis you gave up, 25 SOL, and carry that across as the cost basis of the rare NFT you received. You’ve disposed of three assets at roughly the value of their basis, so the gain on the swap itself is close to nil, and the 25 SOL of basis stays alive inside the new asset until you sell it.

What you should not do is invent a valuation. Grabbing the seller’s old ask, or the collection floor, and calling that the price of the rare piece creates a gain or a loss that never economically happened, and you’d be defending a number you made up.

4. How are NFT-collateralized loans (NFTfi) taxed?

Borrowing against an NFT isn’t a taxable event. Posting your NFT as collateral is a non-taxable transfer, and the loan is non-taxable on receipt. Making a loan against NFT collateral is non-taxable, but the loan interest is taxable as income. Getting liquidated is taxable, and that’s where the money gets lost. Lenders who receive an NFT in a liquidation also have a taxable disposal of their loan amount which often gets missed.

From 2022 onward, NFT lending become popular. SharkyFi and Banx (formerly Citrus) on Solana, Gondi and Blend on Ethereum. You post an NFT as collateral, you borrow SOL or ETH against it, you pay it back later with interest and get the NFT returned. Most loans end that way and nothing taxable happened at all.

Refinancing or partial repayments is where the tracking can start to slip. Roll a loan into a new one and you now have two partial loan records against the same collateral, and the tool has no idea they’re related. This requires some manual tracking which we will usually do in a spreadsheet on the side, and transfer the work into the tax software.

Liquidations are worse, and they cut differently depending on which side of the loan you were on.

If you were the borrower

A liquidation is a disposal of the NFT. Your proceeds are the loan you kept, and your basis is what you originally paid for the NFT. Straightforward on paper. The problem is that the software usually sees an NFT leaving your wallet with no incoming payment attached, because the payment arrived weeks earlier as “a loan.” It’ll book that as a $0-proceeds disposal which overstates your losses, and the loan received as non-taxable. Although this might lower your capital gains, it is a major compliance risk and needs to be corrected.

If you were the lender

You’ve got two things to separate. The interest you earned is ordinary income. The principal coming back is a return of your own capital and isn’t income at all. Tax software won’t be able to differentiate, so that is something that must be manually processed.

And when a borrower defaults, you receive the NFT. The cost basis of that NFT is the loan you funded. Miss that step and it lands in your report with $0 basis. Here’s what that does:

• You lent 30 ETH against a blue-chip PFP.
• The borrower walks. You keep the NFT, you’re out 30 ETH.
• Floor has fallen. You sell the NFT for 18 ETH.
• Reality: you lost 12 ETH on the deal.
• What the software reports with $0 basis: an 18 ETH capital gain.

So you pay tax on a gain of 18 ETH in a year you were down 12. That’s a 30 ETH swing in the wrong direction on a single loan, and the client in the intro had a book of them on Blend. Correcting the basis trail on that side alone took about $50,000 off his reported gains.

5. How do mints, presales, and refunds affect NFT cost basis?

Your basis is what you actually spent, which is often not what left your wallet.

The mint mechanics of that era were creative. Some projects took funds to a wallet up front and airdropped the NFTs weeks later, so the payment and the asset never appear in the same transaction, or the same month. Others ran commit-style mints where you sent a lump sum to a contract, got allocated however many NFTs the raffle gave you, and had the unspent portion refunded.

Software cannot split that on its own. Say you commit 10 ETH, get 3 NFTs, and 5.5 ETH comes back to you. Your real spend is 4.5 ETH, so each NFT carries 1.5 ETH of basis plus its share of gas. Left alone, a tool will often treat the full 10 ETH as spent, or treat the 5.5 ETH refund as income, or assign the NFTs no basis whatsoever because it never connected them to the payment.

All three of those are wrong, and they’re wrong in different directions, which is why two people using the same software on the same mint can get wildly different answers.

6. Do listings, delistings, and bids create taxable events?

No. But they’re a reconciliation problem anyway.

Listing an NFT for sale, changing the price, and delisting it are not disposals. You still own the asset the whole time. Same on the buy side: placing a bid, raising it, and pulling it back are not taxable.

What they do is generate on-chain activity that sits apart from the transaction that actually matters. Your NFT moves to a marketplace escrow contract on listing. Days later the ETH arrives from a buyer. Those are two separate on-chain events, and plenty of tax tools won’t connect them, so you end up with an unexplained outbound NFT and an unexplained inbound payment. Matching them is manual on-chain work, and gas spent on listings and cancellations needs handling too.

7. How are NFT burns, upgrades, and downgrades taxed?

You carry the basis forward through the upgrade, splitting or combining it as the mechanic requires.

Burn-to-upgrade was everywhere. Torch two or three NFTs to mint one better one. Some projects let you run it backwards and burn the upgraded piece to get components back. The economics are a swap of assets you already owned, so the sensible treatment is to trace the basis through rather than pretend an old asset vanished and a new one appeared from nowhere.

Practically: burn two NFTs with 3 ETH and 2 ETH of basis into one upgraded NFT, and the upgraded NFT carries 5 ETH plus the gas you paid to do it. Go the other way and you’re splitting that 5 ETH across the pieces you get back, which needs a documented, consistent allocation method.

Tax software does not do this. It sees burns as disposals to a null address and mints as acquisitions at zero, which manufactures a loss you didn’t take and a gain you’ll pay for later.

8. What happens to cost basis when an NFT bridges chains?

Moving your own NFT from one chain to another isn’t a sale. You owned it before, you own it after. Nothing should be taxable. But a bridge burns or locks the asset on the origin chain and issues a fresh token on the destination chain, and to a tax tool that reads like the old asset was destroyed and a brand-new one appeared out of thin air with no purchase behind it.

Two collections put a lot of people through this. DeGods went Solana, then Ethereum, then back to Solana. y00ts went Solana, then Polygon, then Ethereum. Anyone who bought early and held through those migrations has a cost basis trail with at least two breaks in it.

Remember the story from earlier? When you bridge off a chain and stop using that wallet, the wallet feels finished. It’s empty. Why would a dead wallet matter to your tax return? So it never gets connected to your tax software, and the purchase that established your entire cost basis is sitting in it, invisible.

That’s how a trader who paid hundreds of SOL for rare DeGods and y00ts ends up filing six figures of gains on a roughly break-even book. Same trades either way. The only variable is whether anyone went and got the basis.

If you’ve bridged an NFT, do not assume your software carried the basis with it. Go look at one you already sold and check what basis it used. And connect every wallet you have ever touched, including the empty ones. ESPECIALLY the empty ones.

9. How are Bitcoin Ordinals and Runes taxed?

Ordinals are the hardest thing on this list to reconcile, because for a long stretch Bitcoin had no block explorer that surfaced inscription data at all. You could see sats moving. You could not see which inscription went where. Ordiscan changed that, but it doesn’t retroactively make 2023 easy: tying a specific Bitcoin transaction to a specific inscription purchase still takes real investigation, one transaction at a time.

Ordinals-based lending is worse again. If you borrowed against an inscription, budget serious time.

Runes presales bring a different problem, which is that the cost basis frequently isn’t on-chain in any legible form. You sent BTC to an address on the strength of a Discord post and got an allocation later. Reconstructing it usually means going back through your own Discord and Telegram history for the dates and amounts you agreed to. Clients who kept a simple spreadsheet at the time save themselves a small fortune in professional fees. Clients who didn’t are doing archaeology.

Are NFTs “collectibles” taxed at 28%?

Some of them, probably, and the IRS still hasn’t finished telling us which. The most likely interpretation is that purely onchain NFTs are not, but those representing physical collectibles are.

In Notice 2023-27, the IRS said it intends to treat certain NFTs as collectibles under section 408(m), using a “look-through analysis.” The test is what the NFT actually represents. An NFT certifying ownership of a Pokemon Card or a physical painting looks through to a collectible, so it’s a collectible. An NFT granting the right to use a plot of virtual land generally isn’t.

Why you care: long-term gains on collectibles are taxed at a maximum rate of 28% instead of the usual 0/15/20% brackets. On a big win, that’s a real difference.

The honest position as of August 2026 is that final guidance still hasn’t landed, and digital art PFPs sit in the gray zone. A profile picture isn’t a painting, but it’s also plainly “a work of art,” which is right there in the statutory list. If you’re sitting on a large long-term gain in a blue-chip collection, this is worth a conversation with your tax advisor before you sell.

It matters in one more place that catches people out. If NFTs are collectibles, an IRA can’t hold them. We cover that trap in the NFT tax loopholes guide.

Will my NFT sales show up on a 1099-DA?

Some will. Most of what’s in this article won’t.

Under the final broker regulations, custodial brokers report digital asset sales on Form 1099-DA starting with 2025 transactions, which is the form landing in mailboxes this year. There’s a specific carve-out for NFTs: a broker using the optional aggregate method for “specified NFTs” doesn’t have to report at all if your total NFT proceeds for the year come in under $600.

Do not read that as a $600 tax-free allowance. It’s a reporting threshold for the broker. Your obligation to report the sale is exactly the same at $400 as it is at $40,000.

The bigger point is the coverage gap. Non-custodial and decentralized platforms aren’t in scope, so peer-to-peer marketplace sales, wallet-to-wallet trades, OTC swaps, NFTfi loans, and bridging produce no form at all. Meanwhile the early 1099-DAs report gross proceeds without cost basis. So the form tells the IRS what you sold for, and says nothing about what you paid. If you don’t fill in the other half correctly, the mismatch is what generates the CP2000. Our Form 1099-DA guide covers how to reconcile one against your own records.

How do you report NFT on taxes once the basis is right?

Once the basis is right, the filing itself is the easy part.

• Every disposal goes on Form 8949 with the date acquired, date sold, proceeds, and cost basis. Short-term and long-term are separate sections.
• Totals flow to Schedule D. Net capital losses offset capital gains, then up to $3,000 against ordinary income, and the rest carries forward.
• NFTs received as income (staking rewards, airdrops, being paid in NFTs) are ordinary income at fair market value on the date of receipt, and that value becomes the basis for the eventual sale.
• Creators file Schedule C for primary sales and royalties, and pay self-employment tax. Minting and gas costs are business expenses on that side, not basis adjustments.
• Answer the digital asset question on the front of Form 1040. Yes, it applies to NFTs.

The order matters more than people expect. When you report NFT on taxes, you reconcile first and file second. Trying to fix a broken cost basis inside your filing software at 11pm on April 14th is how phantom gains get filed and then defended for the next two years.

What if you can’t reconstruct your NFT cost basis at all?

Then the default is $0, and $0 basis means the entire sale price is gain. It’s the worst possible way to report NFT on taxes, and it’s also the most common one, because it’s what happens when nobody does anything.

Before you accept it, work the list:

• Connect every wallet you have ever used, including retired and empty ones. This alone solves a startling share of “missing” basis.
• Trace the asset backwards through bridges to the chain you originally bought it on.
• Pull the marketplace transaction from a block explorer and read the actual payment leg.
• For presales and OTC deals, go back through Discord and Telegram for dates, amounts, and counterparties.
• Where the price genuinely can’t be established, document the method you used and why, then apply it consistently. A reasoned, documented method beats a confident guess every time.

Across our client base, that reconstruction work is what the whole engagement is really about. Our internal review of client filings found that 100% of them had at least one material error the software missed, and $100.2M of overstated capital gains corrected across 802 client filings. Overstated. People routinely pay tax they never owed. (Past results are historical and don’t guarantee future outcomes.)

Can you claim a loss on NFTs nobody wants to buy?

Yes, if you actually dispose of them. A dead JPEG sitting in your wallet is an unrealized loss and worth nothing to you at tax time.

The method depends on whether any bid exists at all, and NFTs happen to be a genuinely good tax-loss harvesting asset because the wash sale rule doesn’t reach them the way it reaches stocks. Full playbook here: how to cut your NFT tax bill, including the collection-bid approach and what to do when there’s no bid.

Get the cost basis right before you file

If you traded NFTs seriously in 2021 or 2022, your report is probably wrong, and probably wrong against you. Bridges, liquidations, staking contracts, and retired wallets all push the number the same direction: up.

That’s fixable, and it’s most of what we do. We rebuild the trail on-chain, establish defensible values where no price feed exists, and hand you the numbers you need to report NFT on taxes with a straight face. Request a free review and quote, or read more about working with a crypto tax accountant who has seen this before.

NFTs are hard to report. They’re not impossible, and a bad number is not something you have to live with.

Frequently asked questions

Do I have to report NFTs if I didn’t sell any?

Holding isn’t taxable, so an NFT you bought and still own creates nothing to report. But you must still answer the digital asset question on Form 1040, and if you bought that NFT with crypto, the purchase itself was a taxable disposal of the crypto in the year you bought it.

Is minting an NFT a taxable event?

Not if you paid for it. You’ve bought an asset, and the mint price plus gas becomes your cost basis. If you received it free as a reward or airdrop, that’s ordinary income at fair market value on receipt. If you created and sold it, the proceeds are self-employment income on Schedule C.

Are NFT gas fees deductible?

For investors, gas paid to acquire an NFT is added to your cost basis, and gas paid on the sale reduces your proceeds. Either way it lowers your gain, so it should never be ignored. Creators treat minting gas as a business expense on Schedule C instead.

How do I value an NFT that has no recent sales?

There’s no single accepted method, so you pick a defensible one and stay consistent. In order of preference we use: the most recent comparable sale for that trait combination, the value of what was actually exchanged for it, or the carried-over basis of the assets you gave up. Document what you chose and why, at the time.

Does bridging an NFT trigger tax?

No. Moving your own asset between chains isn’t a disposal. The tax risk from bridging is indirect: it breaks the cost basis trail in your software, so the eventual sale gets reported with $0 basis and an inflated gain. Check what basis your report used on any bridged NFT you’ve already sold.

Is borrowing against my NFT taxable?

Taking the loan isn’t taxable, and repaying it isn’t either. Interest you pay is generally not deductible for a personal investment loan. Liquidation is a disposal of the NFT, with the loan amount you kept as your proceeds. If you’re the lender, interest received is ordinary income and any NFT you take through a default carries the loan amount as its cost basis.

Will the IRS know about my NFT trades?

Increasingly, yes for custodial platforms, which now file Form 1099-DA. Non-custodial marketplaces and wallet-to-wallet activity aren’t covered by those rules, but the chain is public and permanent. The practical risk isn’t the trades they can’t see. It’s the gross proceeds they can see, matched against a return with no cost basis behind it.

Keep reading

• NFT tax loopholes: what works, what doesn’t, and how to harvest dead NFTs
• Crypto gacha taxes: FWA and Collector Crypt pulls
• How to pay taxes on DeFi
• How is crypto taxed in the US?
• The Form 1099-DA guide for 2026
• Work with a US crypto tax accountant

About the author and reviewer

Matt Walrath

Founder of Crypto Tax Made Easy. Matt has worked in crypto tax since 2017, leading reconciliation work across DeFi, cost basis cleanup, exchange tax forms, and tax software reviews. CTME has reconciled 6.7M+ transactions for 1,410+ investors, and Matt has appeared with Binance and spoken at the Australia Crypto Convention.

Michael Bergloff, CPA, MST

US tax reviewer for CTME content that includes IRS or state tax implications. Michael reviews US tax treatment, reporting, and compliance references.

This article is for general educational and informational purposes only and does not constitute tax, legal, accounting, or other professional advice. Tax rules change and individual circumstances differ. Consult a qualified tax professional about your specific situation before acting on anything here. Any reliance on this content is at your own risk.