Introduction
As the NFT market continues to evolve, so do the tax obligations surrounding sales, resales, and royalty earnings. Whether you’re a creator, collector, or active trader, understanding how tax authorities classify NFT income and capital gains is essential. Inaccurate reporting can lead to penalties, audits, or overpayment of taxes.
This article outlines how to properly report NFT sales and royalties based on current 2025 tax standards.
1. Tax Classification of NFTs
NFTs are typically considered digital property or intangible assets, not currency. Depending on the transaction, your tax obligations may include:
Capital gains when selling or trading NFTs
Ordinary income when earning royalties as a creator
Business income if NFT creation/sales is your primary activity
Each classification affects the reporting method and tax rate.
2. Selling an NFT: Capital Gains Reporting
When an NFT is sold:
You must report the proceeds from the sale (in crypto or fiat)
Determine your cost basis—what you originally paid for the NFT, including gas fees
Calculate the gain or loss:
Sale Price – Cost Basis = Capital Gain/Loss
Note whether the holding period qualifies for short-term or long-term capital gains treatment
If you purchased the NFT with crypto (e.g., ETH), that purchase itself may also trigger a capital gains event on the ETH used.
3. Receiving Royalties from NFT Resales
NFT creators often earn a percentage from secondary sales. These royalties are taxable income and must be reported:
In the year they’re received (not when the NFT is sold)
At fair market value of the crypto received at the time of receipt
As business income if the NFT creation is frequent and commercial
You must track each royalty received—platforms may not issue year-end tax forms, so manual recordkeeping is vital.
4. NFT-to-NFT Trades and Barter Transactions
Swapping one NFT for another can still be considered a taxable barter transaction:
Each NFT is assigned a fair market value in crypto or fiat
The difference between the assigned value and your original cost basis results in a gain or loss
These must be reported, even if no crypto is involved in the trade
This applies whether the trade happens on-chain or peer-to-peer.
5. Fees and Gas Costs: Are They Deductible?
Gas fees incurred during NFT sales or minting may be:
Added to your cost basis when acquiring or creating the NFT
Deducted as business expenses if part of a commercial operation
It’s important to categorize each fee properly—using accounting software or spreadsheets can help maintain accuracy.
6. Jurisdictional Considerations
Tax treatment varies by country:
United States (IRS): Capital gains rules apply to NFT sales; royalties are self-reported as income
Canada (CRA): NFT income can be business or capital in nature depending on frequency
UK (HMRC): Emphasizes intention and frequency of activity
Australia (ATO): Treats NFTs similarly to other crypto assets but requires separate tracking
Always align your reporting with local tax law definitions and thresholds.
7. Common Mistakes to Avoid
Failing to record cost basis and FMV at time of each transaction
Not reporting NFT royalty income in the year it was received
Ignoring crypto gains when using ETH or SOL to buy NFTs
Assuming NFT platforms will handle your tax reporting
Most NFT platforms do not issue tax forms, and blockchain activity is your responsibility to track.
Conclusion
NFT sales and royalty earnings bring creative and financial opportunities—but also significant tax responsibilities. To remain compliant, creators and traders must track every transaction, understand the tax treatment, and report income and gains correctly. As tax enforcement expands globally, accurate reporting of NFT activity will become a critical part of responsible crypto participation.
Block3 Finance offers tailored support for NFT creators, collectors, and investors. We help you navigate complex tax rules and ensure your NFT transactions are properly reported—so you can focus on growing your digital portfolio with peace of mind.
This article is written for educational purposes.
Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at info@taxpartners.ca, or by visiting our website at www.taxpartners.ca.
Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.