NFT Tax Loss Harvesting in 2025

Zac McClure
ByZac McClure, MBAReviewed byArthur Teller, CPAUpdated on December 19, 2024 · minute read
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  • NFT tax loss harvesting involves strategically selling NFTs at a loss to offset capital gains, reducing your overall tax liability. This practice can be complex due to the unique nature of NFTs and their often-illiquid markets, but tools and services are available to help identify potential losses.

  • Alternatives to selling include donating NFTs to a 501(c)(3) organization for potential tax deductions, but this requires careful documentation and may involve complex appraisal requirements. Properly managing NFT losses through legitimate transactions is crucial to ensuring compliance with tax regulations.

NFT tax loss harvesting

Finding the best opportunities for NFT tax loss harvesting is more difficult. Because each NFT is unique, there isn’t a known fair market value for each one. This makes it hard to pinpoint which NFTs would realize the largest losses. 

However, services and software are emerging to tackle the problem. For NFT fine art, professional third-party appraisals are provided by a growing number of art appraisers who are familiar with the crypto asset class. 

Meanwhile, automated solutions are popping up for popular NFT collections like Bored Ape Yacht Club, CryptoKitties, or NBA TopShots. These use blockchain data to track the sale prices of NFTs, so price predictions are up-to-date with market conditions. While each service’s methodology is unique, most analyze factors including:

  • Sale prices: Naturally, an NFT’s past sales prices, especially recent sales prices, will play a large role in predicting what it could currently fetch on the market .

  • Floor price: This refers to the lowest listed price of an NFT in the same collection

  • Rarity: NFTs that are part of a collection typically have traits of certain categories, some of which are rarer than others. The rarer an NFT’s combination of traits are, the higher it will be valued. 

Best NFT tax loss harvesting tools

Several companies have emerged to capitalize on the NFT market to support crypto traders to harvest NFT losses and reduce their crypto taxes:

Realizing a loss on an NFT

To use losses to offset crypto gains, you need to realize the loss by selling, swapping, or otherwise disposing of the asset. Between NFT rug pulls and failed projects, it’s not uncommon for an investor to hold assets that can’t easily be sold. So, what can traders do? 

Your goal should be to trade the asset in an arm’s length transaction. This means that each party acts independently in their own self-interest, without pressure from the other party.

For example, selling an NFT on OpenSea for 0.01 ETH to someone you don’t know would be considered an arm’s length transaction. 

Donating NFTs for tax deductions

Another way to get tax savings is to donate to a 501(c)(3) organization. An NFT donation realizes a loss or gain, and the fair market value of the asset can be deducted if you are itemizing deductions (up to 30% or 50% of your income, depending on the type of organization you’re donating to). 

NFT donation example

If you bought an NFT artwork for $30,000 of ETH and then donated it to a museum when the digital asset was valued at $100,000, you would not only not be taxed on the $70,000 gain, but you could also deduct the fair market value of the NFT ($100,000) if you reported itemized deductions, provided you had the necessary documentation and the sum didn’t exceed the income threshold. 

However, be aware of three requirements if you plan to reduce your crypto taxes by deducting NFT donations: 

  1. If you donate a short-term asset, you may only deduct the NFT’s cost basis. In this example, that would be $30,000.

  2. The IRS requires documentation of your donation and the amount of required documentation increases as the worth of your donation increases. If the asset’s fair market value exceeds $5,000, you will need a qualified appraisal of the NFT, which can be difficult to find. 

  3. You must donate the NFT directly to the 501(c)(3) organization to defer tax on the $70,000 gain. If you sell an NFT and donate the proceeds to the organization, you are still liable for capital gains taxes on the sale of the NFT, though you would still be eligible for a $100,000 itemized deduction.

How TokenTax helps with NFT tax loss harvesting

If you’re using crypto tax software, it’s relatively simple to identify opportunities for fungible crypto tax loss harvesting.

For example, TokenTax provides a tax loss harvesting dashboard that displays the assets you’re holding at a loss, as well as the amount of the loss.

Software accomplishes this by pulling in exchange data, updating coins’ fair market values in real time and subtracting from them their cost basis so traders can gauge how large their loss would be. 

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NFT tax loss harvesting FAQs

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Zac McClure
Zac McClureCo-Founder & CEO at TokenTax
Zac co-founded TokenTax after his career in international finance and accounting at JPMorgan, Imprint Capital and Bain. He has worked in more than half-dozen countries and received his MBA from the UPenn Wharton School.
Arthur Teller
Reviewed byArthur TellerCOO (Former) at TokenTax
Arthur came to TokenTax after 12 years at KPMG. A specialist in partnership taxation and enterprise tax software, he is a licensed CPA in both California and Illinois and a member of the AICPA.

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