How Are Cryptocurrency Games Taxed? (2024)

If you’ve played a cryptocurrency game, you’ll need to report your earnings on your tax return. 

In recent years, cryptocurrency games have attracted more users and more media attention. Unfortunately, the tax implications of these games are still unclear to many investors. 

In this guide, we’ll break down everything you need to know about how cryptocurrency games are taxed. We’ll break down the tax implications of the most common crypto game transactions and share the reasons why reporting taxes on crypto games can get complicated quickly. 

What is a crypto game? 

Many popular games offer users the ability to make in-game purchases. However, the profits from these purchases are typically captured by centralized game studios. For example, 100% of the profits from Fortnite skins go to Epic Games. 

In contrast, cryptocurrency games, also known as play-to-earn or P2E games, give players the opportunity to profit. Crypto games often offer in-game items in the form of tokens and NFTs, which can easily be exchanged on crypto marketplaces for other cryptocurrencies. 

Centralized games like World of Warcraft and Fortnite offer in-game currencies, however these cannot be easily exchanged for other assets outside of the game. Meanwhile, crypto games like Axie Infinity and DeFi Kingdoms offer tokenized rewards that can be traded for other assets on crypto exchanges. 

Do you pay taxes on crypto games? 

Yes. Cryptocurrency is considered a form of property by the IRS, which means that it’s subject to income and capital gains tax. Crypto earned in play-to-earn games is subject to the same rules. 

If you earn cryptocurrency within a game, you will recognize ordinary income based on the fair market value of your tokens at the time you receive them. 

When you dispose of cryptocurrency earned within a game, you will incur a capital gain or capital loss depending on how the price of your tokens has changed since you originally obtained them. 

For more information, check out our complete guide to crypto taxes. 

How is earning cryptocurrency rewards taxed? 

If you earn cryptocurrency in a crypto game, it will likely be treated as income based on its fair market value at the time you received it. 

If you decide to sell your cryptocurrency in the future, you may incur a capital gain or loss depending on how the value of your tokens has fluctuated. 

How are in-game NFTs taxed? 

Purchasing an NFT or in-game asset with cryptocurrency is considered a crypto-to-crypto trade and a taxable event. You will incur a capital gain depending on how the price of your asset has fluctuated since you originally received it. 

Trading away an in-game NFT for cryptocurrency is also considered a taxable event. You will incur a capital gain or loss depending on how the price of your asset has fluctuated since you originally received it. 

For more information, check out our guide to NFT taxes. 
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