If you’ve been flipping NFTs in 2026, you’re probably sitting on some nice gains—but also facing a confusing tax situation. The IRS has made it clear: NFTs are property, and every sale, trade, or swap is a taxable event. Whether you’re a casual flipper or a full‑time trader, understanding how to report short‑term NFT income can save you from costly penalties and audits.
This guide covers everything you need to know about NFT taxes in 2026: short‑term vs. long‑term capital gains, calculating cost basis (including gas fees), filling out Form 8949, using crypto tax software, and avoiding common IRS traps. By the end, you’ll have a clear system to keep your NFT flipping profits safe and compliant.
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📋 Table of Contents
- 1. NFT Tax Basics: What the IRS Says in 2026
- 2. Short‑Term vs. Long‑Term Capital Gains
- 3. Calculating Cost Basis: Including Gas Fees
- 4. How to Report NFT Sales on Form 8949
- 5. Special Rules for Creators vs. Traders
- 6. Record‑Keeping: Wallets, Transactions & Tools
- 7. Best Crypto Tax Software for NFT Flippers
- 8. Common NFT Tax Mistakes & Audit Triggers
- 9. State Tax Considerations
- 10. Future of NFT Taxation (2026 & Beyond)
- FAQ
1. NFT Tax Basics: What the IRS Says in 2026
The IRS treats NFTs as property (like stocks or real estate), not as collectibles unless they meet specific definitions. This means:
- Every time you sell, trade, or swap an NFT, you trigger a taxable event.
- You must calculate your gain or loss:
Sale Price – Cost Basis = Capital Gain/Loss. - Cost basis includes what you paid for the NFT plus any fees (like gas, marketplace fees).
- Holding period determines whether gains are short‑term (held ≤1 year, taxed as ordinary income) or long‑term (held >1 year, lower tax rates).
💡 IRS Notice 2014-21 (Still Applies, Updated for NFTs)
The IRS’s 2014 guidance on virtual currency also covers NFTs, since they are crypto‑based assets. In 2026, the IRS has issued additional FAQs confirming that NFT flips are subject to capital gains tax, and creators may owe self‑employment tax on initial sales.
2. Short‑Term vs. Long‑Term Capital Gains
Most NFT flips are held for less than a year, so they fall under short‑term capital gains. That means your profit is added to your ordinary income and taxed at your marginal tax rate (which can be as high as 37% in 2026).
| Holding Period | Tax Rate (2026) | Typical for NFT Flippers |
|---|---|---|
| Short‑term (≤1 year) | Ordinary income rates (10%–37%) | Yes – most flips are quick |
| Long‑term (>1 year) | 0%, 15%, or 20% (depending on income) | Rare for active flippers |
If you hold an NFT as an investment for over a year, you’ll benefit from lower long‑term rates. But for active flipping, expect to pay your regular income tax rate on profits.
3. Calculating Cost Basis: Including Gas Fees
Your cost basis is not just the ETH you paid for the NFT. It includes:
- Purchase price (in USD at time of transaction).
- Gas fees for minting or buying the NFT.
- Marketplace fees (e.g., OpenSea 2.5% fee).
- Any other acquisition costs (e.g., royalties paid to the creator).
✅ Example: Flipping a Bored Ape (Simplified)
You buy an NFT for 1 ETH when ETH = $2,000. Gas fee = $50. Total cost basis = $2,050.
You sell it two months later for 2 ETH when ETH = $2,200. Sale proceeds = $4,400.
Short‑term capital gain = $4,400 – $2,050 = $2,350. This is added to your ordinary income.
Important: If you paid with crypto that you already owned, you also have a separate tax event when you spend that crypto. For example, using ETH that you bought earlier creates a capital gain/loss on the ETH itself. This can get complex—tracking is essential.
4. How to Report NFT Sales on Form 8949
All NFT sales (and crypto trades) must be reported on Form 8949, which then feeds into Schedule D. You’ll need to list each transaction separately unless you use a software that generates a summary.
What goes on Form 8949:
- Description of the asset (e.g., “Bored Ape #123”).
- Date acquired and date sold.
- Proceeds (sale price in USD).
- Cost basis (purchase price + fees in USD).
- Gain or loss.
⚠️ If you don’t report, the IRS may find out
Exchanges and marketplaces (OpenSea, Blur, etc.) are increasingly issuing 1099 forms for high‑volume traders. The IRS also uses blockchain analytics to identify unreported income. Always report.
5. Special Rules for Creators vs. Traders
If you create and sell your own NFTs, the IRS may treat that as self‑employment income (ordinary income + self‑employment tax). The moment you mint and sell, it’s like selling a product. Later flips of that same NFT (if you buy it back) become capital gains.
For traders who only buy and sell others’ works, it’s capital gains. But if you trade so frequently that you qualify as a “trader in securities,” you might be able to deduct expenses under Section 162 (but that’s rare for individuals).
6. Record‑Keeping: Wallets, Transactions & Tools
To calculate gains accurately, you need to track:
- Every NFT purchase and sale (date, price in ETH, USD equivalent).
- Gas fees for each transaction.
- Marketplace fees.
- Transfers between wallets (these are not taxable, but they affect cost basis).
Manual Spreadsheet (for low volume)
Low costIf you make fewer than 50 NFT trades a year, a well‑organized Excel/Google Sheet can work. Columns: Date, NFT name, Wallet, Purchase price (USD), Gas (USD), Sale price (USD), Gain/Loss.
Crypto Tax Software (recommended)
AutomatedTools like CoinTracker, Koinly, or TaxBit connect to your wallets and exchanges, pull transactions, and calculate gains/losses automatically. They also generate Form 8949 and Schedule D.
7. Best Crypto Tax Software for NFT Flippers (2026)
| Software | NFT Support | Gas Fee Handling | Form 8949 | Price (approx) |
|---|---|---|---|---|
| CoinTracker | ✅ Excellent | ✅ Automatic | ✅ | $0–$199 |
| Koinly | ✅ Good | ✅ Manual entry | ✅ | $49–$179 |
| TaxBit | ✅ Excellent | ✅ Automatic | ✅ | Free for individuals |
| CoinLedger | ✅ Good | ✅ Automatic | ✅ | $49–$199 |
Most of these tools allow you to import your wallet addresses (Ethereum, Polygon, etc.) and will automatically fetch all NFT transactions. Always double‑check that gas fees are properly allocated to cost basis.
8. Common NFT Tax Mistakes & Audit Triggers
🚫 Top 5 NFT Tax Mistakes
- Ignoring gas fees – Not including them in cost basis understates your basis and overstates gain.
- Not reporting small trades – The IRS sees everything on the blockchain; even small gains must be reported.
- Mixing wallets – Transfers between your own wallets aren’t taxable, but if you don’t track cost basis properly, you might double‑count or miss gains.
- Forgetting about airdrops – Airdropped NFTs are taxable as ordinary income at fair market value when received.
- Using the wrong holding period – Mistaking short‑term for long‑term can lead to underpayment.
Audit triggers include: large, unreported sales; mismatched 1099s; and claiming excessive losses without documentation. Always keep records for at least 3–7 years.
9. State Tax Considerations
Most states conform to federal capital gains rules, but some (like California) tax all gains as ordinary income regardless of holding period. A few states have no income tax (TX, FL, NV, etc.). Check your state’s treatment of crypto/NFT gains. Also, if you moved during the year, you may have to file part‑year resident returns.
10. Future of NFT Taxation (2026 & Beyond)
The IRS is expected to issue more specific NFT guidance soon, possibly clarifying whether certain NFTs (like art) are treated as collectibles (28% rate) and how royalties are taxed. International tax treaties may also evolve as more countries adopt crypto reporting frameworks (CARF). Stay informed.
NFT Flip Tax Calculator (Example)
Input: Buy 1 NFT for 0.5 ETH + $20 gas, ETH price at buy = $2,500
Sell 3 months later for 1.2 ETH, ETH price at sell = $2,800
Cost basis: (0.5 × $2,500) + $20 = $1,270
Proceeds: 1.2 × $2,800 = $3,360
Short‑term gain: $2,090
Tax at 24% bracket: ~$502
Stay Compliant, Keep More of Your NFT Profits
NFT flipping can be lucrative, but only if you don’t give a huge chunk to the IRS through penalties. By understanding the tax rules, keeping meticulous records, and using the right software, you can report accurately and minimize your liability.
Remember: tax laws change, and this guide is for informational purposes. Always consult a qualified tax professional familiar with crypto.
✅ Keep Learning
Frequently Asked Questions
Yes, you still need to report the loss. Capital losses can offset other capital gains (and up to $3,000 of ordinary income per year). Unused losses can be carried forward.
That’s a taxable event. You must calculate the fair market value of the NFT you received at the time of the trade and report gain/loss on the NFT you gave up.
Gas fees are part of your cost basis. If you mint an NFT and later sell it, add the minting gas fee to your basis. If you later transfer it to another wallet, the gas for transfer is not part of cost basis (it’s a separate expense).
If you pay a royalty when buying an NFT, it’s part of your cost basis. If you pay a royalty when selling (i.e., you’re the creator), it’s a selling expense that reduces your proceeds.
You generally take the donor’s cost basis. When you sell, you’ll use that basis. The donor may have to file a gift tax return if the value exceeds the annual exclusion ($18,000 in 2026).