Glossary

Non-fungible token (NFT)

A non-fungible token is a unique blockchain token representing ownership of a digital or physical item, taxed as property when bought and sold and potentially as a collectible at a 28 percent maximum long-term rate.

How it works

An NFT is a unique token representing ownership of a digital or physical item. Buying one with crypto is a disposal of the crypto; selling it is a disposal of the NFT. The IRS announced in 2023 that it will use a look-through test: an NFT whose associated asset is a collectible (art, for example) is taxed as a collectible, with a 28 percent maximum long-term rate. Creators report primary sales and royalties as ordinary income.

Why it matters

Collectible treatment raises the rate on long-term gains, and losses on worthless projects require a completed disposal to deduct.

Related: collectibles tax rate, worthless crypto.

Guides that cover non-fungible token

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Definitions are general information, not legal advice, and may not reflect the most recent changes in law.

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