You bought a few NFTs in 2021. Maybe a profile picture that was going to be your ticket into something, maybe a handful of mints you barely remember buying. Today the wallet holding them is a museum of bad decisions, and you’ve mentally filed the money under “gone.”
It might not be entirely gone. If you bought those NFTs as investments, the US tax code treats what you lost the same way it treats a losing stock trade, and that can lower what you owe.
How Does The IRS See An NFT?
Start with how the IRS sees an NFT. It’s property, not currency, which puts it in the same bucket as shares of stock or a rental home. When you dispose of property for less than you paid, the difference is a capital loss. And capital losses are useful in a specific order.
First, they cancel out capital gains, dollar for dollar. If you sold anything at a profit this year- crypto, a stock, a piece of real estate- a realized NFT loss can wipe out the tax on those gains. If your losses run past your gains, you can take up to 3,000 dollars of what’s left off your ordinary income for the year. Anything still unused doesn’t vanish. It carries forward into future years until it’s spent. You report all of it on Form 8949, then carry the totals to Schedule D.
Say you cleared 8,000 dollars in gains somewhere in your portfolio this year, and you also let go of a stack of NFTs you’d paid 8,000 dollars for. Those cancel each other out, and the tax you would have owed on the gain goes with them. That’s how it works.
Don’t Get Tripped Up
There’s one condition that trips up almost everyone who tries this tax break. You can’t claim a loss on an NFT you’re still holding. Watching the price sit at zero does nothing for your return. To make the loss count, you have to actually dispose of the token by selling it, swapping it, or otherwise getting it out of your hands in a real transaction. Until then, it’s a bad feeling, not a deduction.
Then there’s the paperwork, which is where most people give up. To claim the loss, you need your cost basis, the dollar amount you paid on the day you bought, gas fees included, dug out of years of transaction history. For a truly dead project, you also have to show there was no real way to sell it: no recent sales, no bids, a floor at zero. Pulling all of that together by hand is miserable, but there are tools to track NFT losses that grab data from public chains. However you assemble it, the documentation is the work, not the idea.
The Deduction Is For NFTs You Held As Investments
The Deduction Is For NFTs You Held As InvestmentsA few things to keep straight before you count on any of this. The deduction is for NFTs you held as investments, not ones you bought purely to enjoy, and that is worth confirming with a tax professional. The wash-sale rule that stops stock traders from selling at a loss and rebuying immediately is written for securities, and whether it applies to NFTs is still an open question, so give any quick rebuy a second thought.
And as of 2025 transactions, marketplaces now report to the IRS on a new form called the 1099-DA, so your numbers need to be right. None of this is tax advice. *Before you file, walk your specific situation through a CPA.
The Bad Crypto Podcast
For what it’s worth, I’m not writing this from a safe distance. I co-created an NFT collection last cycle and have co-hosted The Bad Crypto Podcast since 2017, so I’ve got my own folder of worthless tokens to answer for.
The NFT boom promised a lot of people they were early to something big. For most, the only thing that turned out to be permanent was the ownership itself, sitting on a public ledger that isn’t going anywhere. You might as well let it do the one useful thing it has left.
In the Wallet No Longer
The money you lost can come back to you in a smaller, stranger form, as a line on a tax return, which beats letting it sit in a wallet doing nothing at all.
Image Credit: Leeloo The First; Pexels
