Non-fungible tokens (NFTs) are a type of digital asset that can be bought and sold.

Some people have made a lot of money from NFTs.

Many people have lost money.

Where there’s money, there are taxes.

Here’s what you need to know about taxes for NFTs.

What’s an NFT?

Don’t feel dumb if you don’t know what an NFT is. This is one of the odder creations of the crypto universe.

Let’s start by looking at the phrase “non-fungible token.”

“Non-fungible” means that each NFT is unique. Thus, they differ from Bitcoin and other forms of cryptocurrency, which are fungible—interchangeable with other crypto or real currency.

“Token” means a digital code that provides proof of ownership of the NFT.

When NFTs are created, or “minted,” they are listed on an NFT platform, where NFTs can be sold or traded in accordance with “smart contracts” that govern the transfers. There are hundreds of such platforms. Some smart contracts give NFT creators a cut of any future sale of the NFT.

The ownership and transfer of NFTs is registered online on a shared ledger called the blockchain, similar to cryptocurrency such as Bitcoin. Because NFTs can be easily sold and resold with a transaction history securely stored on the blockchain, they can function as investments that can store value and increase in value over time.

To put this in another frame: NFTs are basically digital certificates of ownership for virtual or physical assets.

NFTs commonly include:

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