7727.02 / Is the creator of a non-fungible token subject to taxation?

The creation of a non-fungible token does not, in and of itself, generate any type of tax liability. The creator of a non-fungible token will only be subject to taxation once the creator sells, exchanges or otherwise profits from the newly minted NFT.

The creator of the underlying asset “tokenizes” the asset to create the NFT itself—which can result in tax liability once the asset is sold if the tokenization significantly increases the value of the asset itself. The entire purchase price would be taxable.

The income received in the transaction will be classified as ordinary income (currently subject to a maximum 37% rate) and taxed as any other compensation received for work would be taxed. The creator is also entitled to deduct costs associated with creating the NFT, including trading fees. Many creators will also be subject to the self-employment tax.