How to Report AI-Generated NFT Income in the USA - Updated Guide

By Alex Assoune Nov 25, 2025

The rise of AI-generated NFTs has opened a new frontier for artists, creators, and investors. These digital assets combine artificial intelligence technology with blockchain-based ownership, making it possible for anyone to generate unique artwork and sell it online.

However, earning income from AI-generated NFTs comes with tax obligations in the United States. The IRS treats NFTs as property, but when AI is involved, questions arise about how to report income, calculate gains, and remain compliant.

This guide breaks it all down, step by step, for beginners and seasoned creators alike.

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Why AI-Generated NFT Income is Taxable

AI-generated NFTs are considered digital property by the IRS. Any income you earn from creating, selling, or licensing NFTs can trigger tax obligations.

You may owe taxes when:

Selling AI-generated NFTs for cryptocurrency or USD
Receiving royalties from NFT platforms
Participating in fractionalized NFT sales
Earning rewards or airdrops connected to your NFT collections

Even though AI is doing the heavy lifting, the income generated is yours to report. The IRS does not differentiate between manually created or AI-created digital assets.

Types of Taxes on AI-Generated NFTs

1. Income Tax

Income tax applies when you receive payment for your AI-generated NFTs, including:

Direct sales in crypto or fiat
Royalties on secondary sales
Prizes or rewards from NFT competitions

This income is taxed at your ordinary income tax rate, which depends on your income bracket (10%–37% in 2025).

2. Capital Gains Tax

If you hold your NFT and sell it later for a higher price, the profit is subject to capital gains tax:

Short-term gains: Held less than 12 months → taxed at ordinary income rates
Long-term gains: Held 12+ months → taxed at 0%, 15%, or 20%

Example:

You create an AI-generated NFT and sell it immediately for $2,000 → taxed as ordinary income.
If you hold the NFT for a year and sell for $5,000 → $3,000 is capital gain (after cost basis), taxed at long-term rates.

Step 1: Track Your AI NFT Income

Accurate records are essential for reporting. Keep track of:

Date of creation and minting
Sale date and sale price
Royalty income from secondary sales
Any fees paid to marketplaces (these reduce taxable income)
Crypto-to-USD conversion rates at the time of each transaction

Pro Tip: Use spreadsheets or NFT tax software like Koinly, CoinTracker, or TokenTax to automate record-keeping.

Step 2: Convert Crypto Income to USD

Even if your AI-generated NFT was sold in Ethereum, Solana, or another cryptocurrency, the IRS requires that all income be reported in US dollars.

Use the exchange rate at the time of each transaction
Document the source of conversion
Many tax software tools handle this automatically

Example:

Sold NFT for 0.5 ETH when ETH = $2,000 → Report $1,000 as income.

Step 3: Determine Your Cost Basis

The cost basis for AI-generated NFTs includes:

AI software subscriptions or usage fees
Minting fees (gas) paid to create the NFT
Design tools or other software used to produce the NFT

Subtract these costs from your gross income to calculate net taxable income. This is important for both income and capital gains reporting.

Step 4: Report NFT Sales and Royalties

Form 1040 + Schedule 1

For NFT sales and direct income:

Include proceeds as “Other Income” on Schedule 1
Report net profit after fees and cost basis

Schedule D & Form 8949

If you sell an NFT for a profit after holding:

Report each transaction on Form 8949
Summarize total capital gains/losses on Schedule D

Self-Employment Considerations

If NFT creation is your business:

Net profit may be subject to self-employment tax
Deduct business expenses like AI tool subscriptions, marketing, or minting fees

Step 5: Consider Crypto-to-Crypto Transactions

Many NFT creators receive cryptocurrency in exchange and may reinvest it:

Trading crypto received from NFT sales for another crypto → taxable event
Use the market value of the received crypto at the time of NFT sale as income

Tracking these conversions carefully is essential to avoid underreporting.

Step 6: Keep Records of Marketplace Fees

Most NFT platforms charge fees:

Minting fees / gas
Marketplace commission (typically 2–5%)

These fees reduce your taxable income. Keep receipts or screenshots to substantiate deductions.

Step 7: Dealing with Royalties from Secondary Sales

NFT royalties can be recurring income:

Each secondary sale generates income for the creator
Report royalties as ordinary income when received
Track date, amount, and crypto-to-USD conversion

Some platforms automatically report royalties, but responsibility still lies with the creator.

Step 8: Using Tax Software to Simplify Reporting

Automating your NFT tax reporting saves time and reduces errors:

Koinly: Handles NFT sales, royalties, and crypto conversions automatically
CoinTracker: Integrates multiple wallets and NFT marketplaces
TokenTax: Supports complex NFT income, DeFi, and cross-chain transactions
ZenLedger: Generates IRS-ready reports for both capital gains and income

These tools also calculate gains/losses and produce Form 8949 and Schedule D, simplifying the filing process.

Step 9: Common Mistakes to Avoid

Forgetting to report small NFT sales or royalties
Ignoring gas and marketplace fees when calculating cost basis
Reporting NFT sales without converting to USD
Treating AI tools as non-deductible (subscriptions and software are deductible)
Confusing minting fees with capital gains

Avoiding these mistakes ensures accurate reporting and reduces the risk of IRS penalties.

Step 10: Strategies to Minimize Tax Liability Legally

Hold NFTs for over 12 months to qualify for long-term capital gains
Deduct AI tool subscriptions, gas fees, and marketplace fees
Use losses to offset gains (tax-loss harvesting)
Donate NFTs to charity for a full deduction
Consider forming an LLC or business entity if creating and selling NFTs regularly

These strategies optimize your tax position while remaining fully compliant.

Special Considerations for AI-Generated NFTs

Collaborative AI tools: If using multiple AI services, document fees for each.
Royalty splits: Track your share of revenue if AI partners or platforms take a cut.
IP ownership: If the AI tool retains IP rights, consult a tax professional to clarify income reporting.

Understanding the nuances of AI-generated NFTs ensures you don’t accidentally underreport or overpay taxes.

Consequences of Failing to Report NFT Income

The IRS has increased scrutiny on cryptocurrency and digital asset transactions. Consequences for failing to report NFT income can include:

Penalties and interest on unpaid taxes
Audits or detailed IRS inquiries
Legal consequences in cases of deliberate non-reporting

Accurate reporting protects you and allows you to focus on creating NFTs rather than worrying about tax issues.

Frequently Asked Questions (FAQ)

Do I owe taxes if I just mint an AI-generated NFT?

No. Minting alone is not taxable. Taxes apply when the NFT generates income.

How are NFT royalties taxed?

Royalties are taxed as ordinary income at the time you receive them.

Do I need to report NFT income if paid in crypto?

Yes. Convert the crypto to USD at the time of receipt and report as income.

Can I deduct AI software and gas fees?

Yes. These are considered legitimate business expenses and reduce taxable income.

What if I sell NFTs internationally?

U.S. taxpayers are required to report worldwide income, including international NFT sales.

Final Thoughts: Reporting AI-Generated NFT Income Made Simple

AI-generated NFTs are opening exciting opportunities for creators, but income from these assets must be reported accurately.

Key takeaways:

NFT income is taxable whether from direct sales or royalties
Minting is not taxable; sales and gains are
Deductible expenses include AI tools, gas fees, and marketplace commissions
Use crypto tax software for accuracy and convenience
Maintain detailed records and consult a professional for complex scenarios

By following these steps, creators can enjoy the booming AI NFT market while staying compliant with IRS regulations.

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Disclaimer: The above content is for informational and educational purposes only and does not constitute financial or investment advice. Always do your own research and consider consulting with a licensed financial advisor or accountant before making any financial decisions. Panaprium does not guarantee, vouch for or necessarily endorse any of the above content, nor is responsible for it in any manner whatsoever. Any opinions expressed here are based on personal experiences and should not be viewed as an endorsement or guarantee of specific outcomes. Investing and financial decisions carry risks, and you should be aware of these before proceeding.

About the Author: Alex Assoune

Alex Assoune (MS) is a global health and environmental advocate. He founded Panaprium to inspire others with conscious living, ethical, and sustainable fashion. Alex has worked in many countries to address social and environmental issues. He speaks three languages and holds two Master of Science degrees in Engineering from SIGMA and IFPEN schools.

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