How to Write Off Worthless NFTs on Your Taxes
Most of us who bought into the craze are holding worthless images. There’s still one move left, and hardly anyone makes it.
There’s a portion of my crypto wallet I hadn’t opened in a long time. Blockchain Heroes cards from a collection I helped create back in the day, a Mutant Ape that felt like a sure thing in 2022, some art from creators whose Discord servers went dark years ago. I wasn’t a tourist in this stuff. I believed in a lot of it.
Last week I opened the folder to check on something unrelated, and I saw it differently. These weren’t sitting near their old prices. They were sitting near zero. And in every tax filing since, I’d never once accounted for what I’d actually lost on them.
That’s a strange thing to realize as someone who’s supposed to be paying attention.
If you bought NFTs, you’ve got company. A 2023 study from the crypto platform dappGambl analyzed more than 73,000 NFT collections and found that roughly 95 percent of them were effectively worthless, with a market cap of zero Ether. They put the number of people holding those dead collections at around 23 million. This was a market that, by various estimates, moved something like 17 billion dollars in trading volume at its 2021 peak. Justin Bieber bought a Bored Ape near the top for 1.3 million dollars. A couple of years later it was reportedly worth a small fraction of that.
That’s a lot of real money, and most of it isn’t coming back.
The one piece of good news buried in the wreckage
If you bought those NFTs as investments, the losses aren’t only emotional. They’re capital losses, and the IRS lets you put them to work.
The mechanics, in plain terms. A capital loss on an NFT behaves like a capital loss on a stock. It offsets your capital gains first, dollar for dollar. That includes gains from crypto, from equities, from selling a rental property, from anything sitting in the capital-gains column. If your losses run past your gains, you can apply up to 3,000 dollars of the excess against your ordinary income each year, and carry whatever’s left into future years until it’s used up. You report it on Form 8949 and carry the totals to Schedule D.
For someone holding a wallet full of dead JPEGs, that can add up to a real number.
Now the catch
You can’t claim a loss on something you still own. A paper loss does nothing for you. To turn it into a deduction, you have to actually dispose of the NFT. Sell it, trade it, or otherwise get rid of it in a genuine transaction. Staring at a floor price of zero on OpenSea isn’t a tax event. Selling is.
And the disposal has to be real. An arm’s-length sale to a stranger counts. Selling to your buddy so you can both claim a loss doesn’t. There are services that will buy your worthless NFT for a sliver of ETH so you have a clean record of the sale, though some tax experts question whether a transaction done purely to manufacture a loss survives the IRS economic-substance test. Sending an NFT to a burn address is another route people use, but the IRS hasn’t specifically blessed it, so it lives in a grey area.
A few more things worth knowing. Wash-sale rules, the ones that stop you from selling a stock at a loss and buying it right back, don’t currently apply to NFTs, because the IRS treats them as property rather than securities. That could change if Congress decides to extend the rule, so the cautious move is to wait a month before rebuying anything similar. And starting with 2025 transactions, NFT marketplaces have to report your proceeds to the IRS on the new Form 1099-DA. The era of assuming nobody’s watching the chain is over.
One honest caveat, because I care more about your trust than a click. I’m not an accountant, and none of this is tax advice for your specific situation. The rules turn on details like whether you held these as investments or bought them for personal enjoyment, and personal-use losses generally don’t get the same treatment. Talk to a tax professional before you file anything.
The boring problem underneath all of this
To claim a loss, you need your cost basis. What you paid, in dollars, at the moment you bought, gas fees included. For a wallet with dozens of NFTs bought across two years of wild ETH price swings, reconstructing that by hand is miserable work. I tried.
So I built something. A tool that can scan your wallet free, reads the transaction history straight off the blockchain, and pulls together each NFT’s original cost basis alongside what it’s worth today. Instead of a folder of sad pictures, you get a report showing what you paid, what it’s worth now, and the distance between the two. The number you and your accountant actually need to see.
The first time I ran it on my own wallets, the total was bigger than I expected. Eye-opening enough that I cleaned it up and put it online for anyone who wants it, at rektwriteoff.com. It’s a paid tool. Given what most of us dropped on this stuff, and what a documented loss can be worth come tax time, I think it earns its keep. But I’d have built it either way, because I needed it myself.
Here’s a sample of high-level output from a friends’ wallet.
The NFT boom sold a lot of people a story about digital ownership and getting in early. For most of us, the ownership is the one part that turned out to be true. You do own it. It’s yours, provably, on a public ledger that will outlive all of us.
So you might as well let it do the last useful thing it can. A dead JPEG can’t be worth what you hoped. It can still be worth something on a tax return, which is a stranger and more fitting ending than the one anybody was promised.
