In 2025, the IRS is stepping up its efforts to monitor and tax digital assets—including cryptocurrencies, NFTs, and tokenized real-world assets. If you buy, sell, trade, or create digital assets, it’s more important than ever to understand how the IRS defines and taxes them.
The IRS treats digital assets as property, not currency, meaning transactions may trigger capital gains tax, just like selling stocks or real estate. New rules this year expand reporting requirements, increase penalties for non-compliance, and introduce new tax forms for digital asset activity.
What is an NFT?
An NFT (non-fungible token) is a unique digital asset that represents ownership of a specific item or piece of content—like art, music, or virtual real estate, on a blockchain. Unlike cryptocurrencies such as Bitcoin or Ethereum, NFTs are not interchangeable because each one has distinct value and metadata. NFTs are commonly used to verify digital ownership and authenticity.
How NFTs Are Taxed by the IRS
The IRS looks at NFTs (non-fungible tokens) the same way it looks at property, like real estate or stocks. That means when you sell or trade an NFT, it could be a taxable event. But how you’re taxed depends on whether you created the NFT or just bought it as an investment.
If You’re a Creator:
If you made and sold an NFT (like digital art or music), the money you earn is treated as regular income—just like getting paid for a freelance job. You may also have to pay self-employment tax on it.
If You’re an Investor or Buyer:
If you bought an NFT and later sell it, you’ll pay capital gains tax—based on how much you made from the sale (sale price minus what you paid).
- Short-term gains (NFTs held for under a year) are taxed like regular income.
- Long-term gains (held over a year) get a lower tax rate.
If you’re buying and selling NFTs quickly to make profits (a.k.a. flipping), you could owe more in taxes.
What About Royalties?
Royalties are payments you earn each time someone uses or resells something you created.
In the case of NFTs, royalties mean that:
- If you create an NFT (like digital art, music, or a video), and someone resells it later…You can automatically earn a percentage of that resale—thanks to how NFTs are programmed with smart contracts.
Some NFT platforms pay royalties to creators when NFTs are resold. Those royalty payments are also considered regular income—and must be reported on your taxes, even if they were paid in cryptocurrency and you didn’t cash them out.
What is Crypto?
Crypto, short for cryptocurrency, refers to a type of digital or virtual currency that uses cryptography for security. Cryptocurrencies operate on decentralized blockchain networks and are not controlled by any central authority. Popular examples include Bitcoin (BTC), Ethereum (ETH), and Solana (SOL). Crypto is used for digital payments, investments, decentralized finance (DeFi), and more.
Key IRS Tax Rules for Crypto and NFTs in 2025
The IRS now requires more detailed digital asset reporting. Here are the main rules that apply this tax year.
Taxable events include:
- Selling NFTs or crypto for fiat
- Trading one crypto for another
- Purchasing NFTs with cryptocurrency
- Receiving crypto through staking, mining, or airdrops
- Gifting digital assets above the IRS threshold
Even using crypto to pay for goods or services can trigger capital gains tax.
What Are the IRS Updates for 2025?
For 2025, the IRS introduced:
- Mandatory digital asset checkbox on Form 1040
- New thresholds for crypto reporting via brokers
- Enhanced penalties for unreported crypto income
- Automatic third-party reporting from exchanges via Form 1099-DA
Make sure your platforms are providing tax documents. If they aren’t, it’s your responsibility to track and report.
Cryptocurrency Taxation Basics
Taxing NFT assets is one piece of the puzzle. Here’s how crypto itself is taxed in 2025.
Capital Gains and Losses
You incur a capital gain or loss when you sell or trade crypto. The amount depends on your holding period and cost basis.
- Example: You buy 1 ETH for $1,000 and sell it for $2,500.
- You owe capital gains tax on $1,500.
Income from Crypto
- Mining/staking rewards are taxed as income.
- Airdrops are considered ordinary income based on market value at receipt.
- Wrapped tokens or forks can be taxable depending on how they’re acquired.
Tracking Cost Basis
Keep records of:
- Purchase prices (cost basis)
- Dates of acquisition and sale
- Fair market value at transaction time
- Fees paid
Using crypto tax software is highly recommended.
What Are Digital Assets?
Digital assets are any assets that exist in a digital format and hold value. This broad category includes cryptocurrencies, NFTs, digital tokens, and even digital representations of real-world assets like stocks or real estate. The IRS classifies digital assets as property for tax purposes, which means buying, selling, or exchanging them may trigger taxable events.
Reporting Digital Assets on Your Tax Return
Filing taxes for your digital assets—like NFTs and cryptocurrency—isn’t optional. The IRS is getting more serious about tracking this activity, and missing something can lead to penalties, audits, or even legal trouble. Here’s what you need to know to stay compliant in 2025.
IRS Forms You’ll Need to File
1. Form 1040 – U.S. Individual Income Tax Return
This is the standard form most people use to file their taxes. Since 2021, it includes a digital asset question near the top that asks if you received, sold, sent, exchanged, or otherwise acquired any digital assets.
Even if you just bought crypto and didn’t sell it, you still may need to check “Yes.
2. Schedule D – Capital Gains and Losses
Use this form to report profits (or losses) from selling assets like crypto or NFTs. It summarizes your overall gains or losses during the year.
Example: If you sold ETH or an NFT for more than you paid, that’s a capital gain.
3. Form 8949 – Sales and Other Dispositions of Capital Assets
This form works alongside Schedule D. Here, you list each crypto or NFT transaction one by one. You’ll include:
- What asset you sold
- Date you bought and sold it
- How much you paid (cost basis)
- How much you earned from the sale
- The gain or loss on each transaction
Tip: Crypto tax software can help you automatically generate this form.
4. Form 1099-DA – New for 2025
This is a brand-new form introduced by the IRS for digital assets. If you use a crypto exchange (like Coinbase, Kraken, or OpenSea), they may send you this form at tax time.
It reports:
- Your digital asset transactions
- How much you received
- The cost basis (if known)
- Any taxable gains
- Important: Even if you don’t receive this form, you’re still responsible for reporting all your crypto/NFT transactions accurately.
Why It Matters
The IRS is investing in blockchain analytics tools to identify unreported digital asset activity. They’re working closely with exchanges, which are now required to report customer data. If you don’t report, the IRS likely knows anyway—and failing to file correctly can result in fines or audits.
Understanding Complex Crypto Transactions
Some crypto activities, like NFT trades or using DeFi platforms, can get tricky when it comes to taxes. For example:
- Trading NFTs: If you swap one NFT for another and they’re not equal in value, it could count as a gain or a loss on your taxes.
- Earning Tokens: If you earn tokens through yield farming or staking, the IRS may treat that as income—even if you haven’t sold anything yet.
What Happens If You Don’t Report?
The IRS is paying close attention to crypto activity using special blockchain tools. That means:
- If you don’t report your crypto transactions, you could face penalties, interest, or even an audit.
- And if the IRS believes you’re purposely hiding your crypto activity, it could lead to more serious consequences, including criminal charges.
Tax Planning Tips for NFT and Crypto Investors
Want to avoid a surprise tax bill? A little planning can go a long way. Here are some simple ways to stay ahead of the game:
1. Turn Losses into Tax Savings
If you have crypto or NFTs that dropped in value, selling them can help you offset gains from other investments. This strategy—called tax-loss harvesting—can lower your total tax bill and give you a chance to reinvest more wisely.
2. Time Your Sales Strategically
Holding your assets for more than a year often means you’ll pay less in taxes thanks to long-term capital gains rates. You can also think about selling in years when your income is lower to reduce what you owe.
3. Explore Crypto-Friendly Retirement Accounts
Some IRAs and Roth IRAs now allow crypto investments. If you qualify, your crypto gains in a Roth account could grow completely tax-free.
4. Get Help from a Crypto Tax Expert
Taxes on digital assets can be tricky. A tax professional who understands crypto can help you:
- Avoid mistakes on your return
- Find valuable deductions
- Make sense of complex transactions
Final Thoughts
The IRS is serious about taxing NFTs, cryptocurrencies, and other digital assets. The more you understand about how these rules apply, the better prepared you’ll be to avoid penalties and optimize your tax outcomes.
Key Takeaways:
- NFTs and crypto are considered property and subject to capital gains.
- Creators may owe ordinary income tax on NFT sales.
- New 2025 IRS rules increase enforcement and reporting obligations.
- Tax planning and recordkeeping are essential for compliance.
Need help with NFT taxes or crypto reporting?
Visit our Tax Relief Helpers blog for more expert tips or reach out to a tax professional who understands the digital economy.
Written by: Thomas Brooks
Published: September 29, 2025