Tokenized Asset Tax Basis Rules for Real-World Asset Holders

By Yuna Park · Reviewed by Marcus Feldman, CPA, for technical accuracy · Finance Fundamentals

This guide covers U.S. federal income tax rules only. State tax treatment, non-U.S. jurisdictions, and estate or gift tax questions are outside its scope.

Why the Wrapper Doesn’t Erase the Tax Question

A family office manager moves $4 million out of a conventional Treasury money market fund and into BlackRock’s tokenized USD Institutional Digital Liquidity Fund, known by its ticker, BUIDL. The wire transfer takes a day instead of three. The statement now shows a token balance instead of a share count. Nothing else about the underlying holding changed, and that is exactly the point this article keeps returning to.

Tokenized real-world assets have moved from a niche experiment to a genuine allocation choice for institutions and, increasingly, individual investors. BlackRock’s BUIDL fund launched in March 2024 through the tokenization platform Securitize, starting on Ethereum with roughly $200 million in assets. By mid-March 2026 it had crossed $2 billion, a tenfold increase in under two years, and it has since expanded across Polygon, Arbitrum, Optimism, and Avalanche.

Franklin Templeton’s tokenized fund, marketed under the BENJI name and built on its Franklin OnChain U.S. Government Money Fund (ticker FOBXX), launched even earlier, in April 2021 on the Stellar network. It has since added Polygon, Avalanche, and BNB Chain, and reported roughly $2.5 billion in assets, with year-to-date growth exceeding 100% as of mid-2026.

On July 1, 2026, Franklin Templeton executed an on-chain Treasury transaction through Tradeweb on the Canton network. It’s a small signal, but a telling one: tokenized fund infrastructure is starting to touch mainstream trading venues instead of staying confined to crypto-native platforms.

Boston Consulting Group has projected the broader tokenized asset market could reach $16 trillion by 2030. That number gets cited often enough that it’s worth treating as a directional estimate rather than a forecast anyone should bank on. Still, the direction itself, more real assets represented as on-chain tokens, looks durable enough that basis tracking for these instruments deserves the same attention investors already give to ordinary brokerage accounts.

Look-Through Treatment: The Underlying Asset Still Governs

The starting point for any digital asset tax question remains IRS Notice 2014-21, issued March 25, 2014, which established that virtual currency is treated as property for federal tax purposes rather than as currency. General property rules, basis, holding period, capital versus ordinary character, apply to it the same way they apply to a stock certificate or a parcel of land.

That notice was written for cryptocurrencies like bitcoin, which don’t represent an underlying asset in the traditional sense. Tokenized real-world assets are different. A BUIDL token represents a claim on a fund holding Treasury bills, cash, and repurchase agreements. A tokenized real estate interest represents a claim on a specific property or a fund holding several. So the harder question is whether the token itself, as a piece of property, is what gets taxed, or whether the tax law looks through the token to the asset it stands for.

IRS Notice 2023-27, issued in March 2023, offers the clearest signal so far, even though it addresses non-fungible tokens rather than fungible RWA tokens. That notice states that an NFT should be treated as a collectible for tax purposes if the asset it represents would itself be a collectible, such as a piece of art or a gem. In other words, the IRS applied a look-through analysis: check what’s underneath, then apply that asset’s tax rules to the token.

Tax professionals writing about tokenized real-world assets have generally extended this same logic by analogy. A 2025 analysis from advisory firm Alvarez & Marsal put it directly: look-through treatment “is more appropriate” for RWA tokens. The alternative would let taxpayers sidestep the tax rules that apply to bonds, real estate, or other assets simply by wrapping them in a token.

The firm was equally direct that formal guidance hasn’t caught up, writing that “more guidance is needed” on exactly how far the look-through principle extends. That’s a practitioner interpretation, not settled law. The IRS, for its part, hasn’t issued a notice squarely addressing tokenized funds, tokenized private credit, or tokenized real estate the way it addressed NFTs.

Look-through treatment “is more appropriate” for tokenized real-world assets, otherwise taxpayers could avoid the tax issues associated with holding bonds or real estate simply by tokenizing the asset. More guidance is needed here.
— Alvarez & Marsal, tax practitioner analysis, 2025

Practically, this means: for tax purposes, a tokenized Treasury fund share is a fund share. A tokenized real estate interest is a real estate interest, with its ordinary income and depreciation rules intact. A tokenized private credit note is debt, taxed as debt. The blockchain rail moving it around doesn’t rewrite any of that, at least not under the reasoning the IRS has offered so far.

Basis Tracking Across Token Transfers, Wraps, and Redemptions

Basis tracking for a tokenized asset starts the same way it starts for anything else: purchase price, plus commissions, gas fees, or platform fees paid to acquire it. Where it gets more complicated is at the points where the token moves, changes form, or gets exchanged back for cash or the underlying asset directly.

The wallet-by-wallet rule now applies to RWA tokens too

Revenue Procedure 2024-28, released June 28, 2024, ended the old practice of tracking digital asset basis as one universal pool across every account a taxpayer held. Starting January 1, 2025, taxpayers must track basis on a wallet-by-wallet or account-by-account basis, choosing either specific unit identification or a documented global allocation method such as first acquired, first allocated.

Taxpayers who wanted to reallocate existing basis across their wallets under the safe harbor needed to act fast. The deadline was the earlier of their first 2025 sale or the due date of their 2025 return.

This rule was written with crypto exchanges and self-custodied wallets in mind, but nothing in its language exempts tokenized RWAs. A tokenized real-world asset held across multiple wallets, say, a BUIDL position split between a custodial platform and a self-hosted wallet, faces the same allocation-method choice as any other digital asset under this framework.

That’s a point worth sitting with. A lot of RWA-focused guidance out there covers the look-through character question and skips the mechanical wallet-level tracking question entirely. Investors comparing custody options should also review how the wallet-by-wallet accounting requirement interacts with fund-level recordkeeping, since fund administrators like Securitize maintain their own ledgers that may not match an individual holder’s wallet history exactly.

Wraps, unwraps, and bridge transfers

Wrapping and bridging create the trickiest basis questions in this space. When a tokenized asset gets “wrapped” into a different token standard, or bridged from one blockchain to another, something changes on the surface. The real question is whether that counts as a taxable disposition of the original token, or merely a non-taxable change in form.

The IRS hasn’t ruled on this directly for RWA tokens. The general property-tax principle is that a disposition requires a change in beneficial ownership or a materially different property right, not just a change in technical wrapper.

Many practitioners treat same-economic-interest wraps, where the holder’s claim on the underlying asset is unchanged, as non-taxable, carrying over the original basis and holding period. But this is an interpretation, not a rule the IRS has published. Conservative filers sometimes treat wraps as taxable exchanges out of caution instead. Document your position and your reasoning either way.

Redemptions are more settled. When a tokenized fund share gets redeemed for cash, that’s a sale, full stop. Gain or loss equals redemption proceeds minus basis, and the character follows the underlying fund’s typical treatment: ordinary income for a money market fund’s accrued interest component, capital gain or loss for any share-price movement.

Broker reporting is arriving, but it won’t do the work for you

New broker reporting rules add a cross-check rather than a substitute for personal recordkeeping. Under final IRS regulations, brokers handling digital asset transactions, including many platforms that custody tokenized RWAs, must report gross proceeds on Form 1099-DA. That requirement applies to transactions effected on or after January 1, 2025, with the first filings covering the 2026 tax season. Cost basis reporting by brokers phases in a year later, for transactions effected on or after January 1, 2026.

That gap matters. A platform’s 1099-DA may show accurate proceeds but blank or wrong basis, particularly for tokens that arrived through a bridge or wrap the platform didn’t originate. Relying on the form alone, without an independent basis ledger, is a fast way to overstate a gain that isn’t real.

Income Character Passthrough for Tokenized Funds

Tokenized money market and Treasury funds distribute income the same way their non-tokenized counterparts do. BUIDL and BENJI both pass through interest income earned on their underlying Treasury bills and repurchase agreements. That income is ordinary income to the holder, not capital gain, regardless of whether the distribution arrives as a wire transfer or an on-chain token rebase.

This matters more than it sounds like it should, because some investors assume anything happening “on-chain” gets crypto-style tax treatment by default. It doesn’t. A rebasing token that increases a holder’s balance to reflect accrued interest is functionally a dividend reinvestment. The IRS’s look-through logic treats it as ordinary income in the year it accrues, not as a token appreciation event taxed only on eventual sale.

For tokenized private credit and real estate vehicles, the same passthrough logic applies but with more moving parts. Private credit income is generally ordinary interest income.

Real estate income can be ordinary rental income, capital gain on sale of the underlying property, or a mix. Depreciation recapture rules layer on top when the fund structure allows pass-through depreciation to token holders. Whether a specific tokenized real estate structure actually passes through depreciation depends entirely on how the underlying legal entity is set up, often an LLC or a Delaware statutory trust. Two tokens that look identical on a block explorer can carry very different tax consequences underneath.

A Worked Example: Wrap, Hold, and Partial Redemption

Numbers make this concrete. Say an investor buys $50,000 of a tokenized Treasury fund on March 1, 2026, paying a $75 platform fee. Total basis: $50,075, held in Wallet A.

On June 15, 2026, the investor bridges half the token position, representing $25,000 of the original claim, to a different blockchain to use it as collateral elsewhere. Under the more common practitioner interpretation, this bridge doesn’t change beneficial ownership of the underlying fund claim, so it’s treated as a non-taxable transfer.

Basis carries over: $25,037.50 moves to Wallet B, half of the original $50,075. The other $25,037.50 remains in Wallet A. Under Rev. Proc. 2024-28, this allocation must be documented at the time of the transfer, not reconstructed later.

Over the second and third quarters, the fund accrues and distributes $612 in interest income, split proportionally between the two wallets. That $612 is ordinary income in 2026, reportable regardless of whether the investor ever converts the tokens back to cash.

On November 1, 2026, the investor redeems the Wallet A position for cash: $25,240 in proceeds against $25,037.50 in basis, a $202.50 gain. This is a fund share redemption, not a sale of the underlying Treasury bills directly. The gain is generally short-term capital gain, since the holding period is under a year from the original March purchase.

The interest already reported as ordinary income has no further tax consequence at redemption. The Wallet B position stays open, still carrying its $25,037.50 basis plus its share of accrued but unrealized appreciation.

Tokenized Asset Types Compared

Common Mistakes in Tokenized Asset Basis Tracking

Three mistakes show up repeatedly in this area, and they compound each other if left uncorrected.

The first is treating every token movement as a taxable event by default, or the opposite: assuming nothing on-chain is taxable until cashed out. Neither blanket rule is correct. Some transfers are dispositions. Some aren’t. The determination depends on whether beneficial ownership actually changed, and that has to be assessed transaction by transaction.

The second is losing basis records across platforms. A token bridged from one chain to another, or moved from a custodial exchange to self-custody, often shows up on the destination platform’s records with no acquisition history at all. If the investor doesn’t keep independent records, the platform may report a cost basis of zero, inflating gains dramatically at eventual sale.

The third, specific to RWA tokens, is assuming the token wrapper determines tax treatment rather than the underlying asset. An investor who reports a tokenized real estate fund’s distributions as capital gains because “it’s a crypto asset” is very likely wrong. Depreciation recapture rules, ordinary income characterization for rental income, and passive activity loss limitations don’t disappear because the ownership interest happens to be represented on a blockchain.

A fourth mistake, easy to miss until a mismatch turns up in an audit letter, is treating an incoming Form 1099-DA as a finished basis record. Early versions of the form will often report proceeds accurately while leaving basis fields blank, especially for tokens that moved between platforms before the reporting broker acquired them. Taxpayers who copy a blank or zero basis figure straight from the form, instead of reconciling it against their own ledger, risk reporting a taxable gain far larger than the real one.

A Practical Recordkeeping Checklist

Keep records that would satisfy a paper audit, not just a screenshot of a dashboard. At minimum:

• Purchase confirmations showing date, amount, fees, and the specific wallet or account receiving the token
• A wallet-by-wallet basis ledger consistent with the Rev. Proc. 2024-28 allocation method you chose, updated at the time of each transfer, not reconstructed afterward
• Documentation of the legal structure behind each tokenized asset, such as a fund prospectus, private placement memorandum, or offering document, to establish underlying character
• A log of wrap, bridge, and unwrap events noting whether beneficial ownership changed and the reasoning for that determination
• Annual distribution statements separating ordinary income from capital gain components
• Depreciation schedules for any tokenized real estate holding, including recapture calculations if a sale occurred
• Redemption or sale confirmations tying proceeds back to the specific basis lot disposed of

Key Takeaways

• Look-through treatment, not the token wrapper, generally determines a tokenized asset’s tax character, though the IRS hasn’t issued guidance addressing RWA tokens as directly as it addressed NFTs in Notice 2023-27
• Rev. Proc. 2024-28’s wallet-by-wallet basis rule, effective January 1, 2025, applies to tokenized real-world assets the same way it applies to bitcoin or ether
• Wraps and bridges sit in a genuine gray area; document your position on whether beneficial ownership changed, since the IRS hasn’t ruled on this directly
• Income passthrough for tokenized funds like BUIDL and BENJI is ordinary income in the year it accrues, not a deferred capital gain
• Real estate and private credit tokens carry meaningfully higher basis-tracking complexity than tokenized Treasury funds, mainly because of entity structure and depreciation questions

Frequently Asked Questions

Does tokenizing an asset change its tax character?

Generally no. Tax professionals and the IRS’s approach in Notice 2023-27 point toward look-through treatment, meaning a tokenized bond is still taxed as a bond and a tokenized real estate interest is still taxed as real estate. Formal IRS guidance addressing RWA tokens specifically hasn’t been issued, so this remains an interpretation rather than a settled rule.

How do I track basis when I wrap or bridge a tokenized Treasury fund position?

Most practitioners treat a same-economic-interest wrap or bridge as a non-taxable change in form, carrying the original basis and holding period forward. Document the transfer, the destination wallet, and your reasoning at the time it happens, consistent with the wallet-by-wallet allocation method required under Rev. Proc. 2024-28.

Is income from BlackRock’s BUIDL or Franklin Templeton’s BENJI taxed differently from a regular money market fund?

No. Both funds pass through interest income earned on underlying Treasury bills and repurchase agreements as ordinary income, the same as a conventional Treasury money market fund. The on-chain delivery mechanism doesn’t change that.

What happens to basis when a tokenized real estate interest is redeemed for cash?

The redemption is treated as a sale of the underlying interest. Gain or loss equals proceeds minus basis, with character following the underlying entity’s structure, potentially including depreciation recapture, ordinary rental income already reported, and capital gain or loss on the balance.

Are gains on tokenized private credit tokens ordinary income or capital gains?

Interest payments are ordinary income. Gain recognized when principal is repaid, or when the note is sold above its basis, is typically capital gain. The specific structure of the underlying credit agreement can affect this, and illiquid private credit tokens often lack the standardized reporting that makes the determination straightforward.

References

• Internal Revenue Service, Notice 2014-21, “IRS Virtual Currency Guidance,” issued March 25, 2014
• Internal Revenue Service, Notice 2023-27, “Treatment of Certain Non-Fungible Tokens as Collectibles,” issued March 2023
• Internal Revenue Service, Revenue Procedure 2024-28, released June 28, 2024, establishing the wallet-by-wallet digital asset basis allocation safe harbor effective January 1, 2025
• Internal Revenue Service, final broker reporting regulations for digital asset sales and exchanges (Form 1099-DA), gross proceeds reporting effective for transactions on or after January 1, 2025, and cost basis reporting effective for transactions on or after January 1, 2026
• Alvarez & Marsal, “Tokenization of Real World Assets: The Opportunity and Tax Considerations That Matter,” thought leadership analysis, 2025
• Boston Consulting Group, tokenized asset market growth projections cited across industry coverage, projecting approximately $16 trillion in tokenized assets by 2030
• Securitize and BlackRock public disclosures regarding the BlackRock USD Institutional Digital Liquidity Fund (BUIDL), launched March 2024
• Franklin Templeton public disclosures regarding the Franklin OnChain U.S. Government Money Fund (BENJI), launched April 2021