Plain English
NFTs in the US are taxed as property — capital gain/loss on sale, ordinary income on certain rewards or airdrops. The wrinkle: some NFTs may be classified as “collectibles” under Section 408(m), which carry a maximum long-term capital gains rate of 28% rather than the standard 20%. IRS Notice 2023-27 began applying a “look-through” test.
How it actually works
Under the look-through test, an NFT is a collectible if the underlying asset would qualify — art, gem, antique, coin, alcoholic beverage, or any tangible personal property. A PFP-style art NFT generally meets this; a utility token wrapped as an NFT or a tokenized real-estate deed may not. The classification matters most for long-term holders at top marginal rates.
What it means for you
For HNW NFT collectors, the 28% collectibles rate can add 8+ percentage points to your effective tax rate on long-term gains. Plan accordingly: avoid commingling NFT gains with regular crypto without categorization, document the underlying for each piece, and consult a CPA on classification before significant disposals. Holding NFTs in IRAs is also restricted (collectible rules block direct holding in many cases).
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Educational content only. Not investment, tax, or legal advice.