SoFi's Tokenized Deposit: What It Means for Your Crypto Tax
SoFi has moved tokenized banking from a niche experiment to a consumer product. Its new offering lets customers hold a bank deposit on-chain, earn a 4.4% annual yield, and convert that position into a stablecoin whenever they choose. That sounds appealing. But if you're a US filer, the product sits at an intersection of tax rules that the IRS has never fully mapped out, and the consequences of getting it wrong can be costly. Here's what you need to know right now about how crypto is taxed in the US when the asset in question is a yield-bearing tokenized deposit.
What SoFi's Tokenized Deposit Actually Is
The product is a bank deposit represented as a token on a blockchain. The deposit itself sits within the regulated banking system, so it carries FDIC-style protections on the underlying cash. The token, however, lives on-chain and behaves like a stablecoin in that it is designed to maintain a stable value pegged to the US dollar.
The yield component
Holders earn 4.4% APY on the deposited amount. That yield is credited while the token is held, before any conversion to a stablecoin takes place. The mechanism is similar to a high-yield savings account in economic terms, but the delivery vehicle is a digital token rather than a conventional account credit.
The conversion feature
The distinctive element is the ability to convert the tokenized deposit into a stablecoin. That conversion step is where most of the tax complexity lives. Converting one digital asset into another has consistently been treated as a taxable event under IRS guidance, and a tokenized deposit is almost certainly a digital asset for federal tax purposes.
How the IRS Currently Treats Digital Assets
The IRS has been clear on the broad framework. Under existing guidance, digital assets are property. That one word, "property," drives almost every tax outcome you'll face with a product like this.
Ordinary income on yield
When you receive interest, yield, or any form of income denominated in a digital asset or credited to a digital asset account, the IRS treats that as ordinary income in the tax year you receive it. The amount included in income is the fair market value of the tokens received at the time of receipt. For a dollar-pegged token this is straightforward: one token worth one dollar equals one dollar of ordinary income. You report it whether or not you cash out, and you'll pay income tax at your marginal rate, not at the lower long-term capital gains rate.
This is essentially the same treatment that applies to what the new US proposals mean for USDT tax and USDC tax, where yield and swap events are both in scope.
Capital gains on disposal
When you dispose of a digital asset, including by converting it into a different digital asset, you trigger a capital gains or loss calculation. Disposal means selling, swapping, or otherwise parting with the asset in exchange for something else. Converting a tokenized deposit token into a stablecoin is a swap: you give up one asset and receive another. That is a disposal.
Your gain or loss equals the fair market value of what you receive minus your cost basis in what you give up. If both the tokenized deposit token and the stablecoin are pegged to one dollar, the nominal gain may be small or zero, but you are still required to report the event. The IRS does not offer an exemption simply because two assets share the same peg. Understanding USDT tax, USDC tax, and how crypto is taxed in the US under the new bill is important context here, as legislative proposals have been debating whether de minimis thresholds should apply to stable-value swaps.
Breaking Down the Tax Events Step by Step
A typical user journey with SoFi's tokenized deposit involves three distinct moments, each with its own tax treatment.
Step 1: Depositing cash and receiving the token
When you convert US dollars into the tokenized deposit, you're exchanging fiat currency for a digital token. Because the dollar is not property for capital gains purposes (it's the base currency), this first step does not itself trigger a capital gain. Your cost basis in the token is what you paid: one dollar per token.
Step 2: Earning the 4.4% yield
Each time yield is credited, whether daily, monthly, or at another interval, you have received income. That income is taxable as ordinary income at the fair market value on the date of receipt. Keep a record of every credit: the date, the number of tokens received, and the value in US dollars on that date. Those yield tokens also carry their own cost basis equal to the income amount you reported, which matters when you eventually dispose of them.
Step 3: Converting to a stablecoin
This is the conversion the product markets as a feature. From a tax perspective, you are disposing of your tokenized deposit tokens and acquiring stablecoin tokens. You must calculate gain or loss on every token you give up. Your gain is the dollar value of the stablecoin received minus the cost basis of the tokenized deposit tokens surrendered. Given the dollar peg on both sides, the taxable gain may be minimal in practice, but the reporting obligation does not disappear. If the deposit tokens have a cost basis that differs slightly from their redemption value due to accumulated yield or minor price deviations, a gain or loss exists and must be reported.
Accounting Implications: What You Need to Track
This product generates more record-keeping work than a conventional savings account, and less than a volatile crypto portfolio. Here's what you actually need to keep on file.
Records you must maintain
You'll need the acquisition date and cost basis for every batch of tokens you receive, including yield payments. You'll also need the date and proceeds value for every disposal, including each conversion to a stablecoin. If you hold yield tokens separately from principal tokens, you need separate cost basis records for each. The IRS requires you to be able to identify which specific tokens you are disposing of, so lot-level records matter if you have accumulated tokens across multiple yield credits.
Cost basis method
The IRS allows several cost basis methods for digital assets, including FIFO (first in, first out), specific identification, and, under recent guidance, HIFO (highest in, first out) for certain scenarios. Choosing the right method can meaningfully affect the size of a reportable gain. Specific identification gives you the most flexibility but requires the most detailed records.
Reporting forms
Ordinary income from yield will appear on Schedule 1 of your Form 1040 (or potentially Schedule B if treated as interest income, depending on how SoFi characterises the payments). Capital gains and losses from conversions go on Form 8949 and flow to Schedule D. SoFi may issue a Form 1099 covering interest or miscellaneous income, but do not rely on that form alone; it may not capture every taxable event, particularly on the conversion side.
What Pending Legislation Could Change
US lawmakers have been actively debating whether stable-value digital asset transactions should receive more favourable treatment. Some proposals would exempt small-value transactions below a de minimis threshold, which could reduce the reporting burden on frequent small conversions. Others address whether yield from tokenized deposits should be treated as interest income (potentially subject to different withholding rules) rather than miscellaneous income.
None of these proposals are law yet. Until Congress acts and the IRS issues updated guidance, the existing property framework applies. Filing based on anticipated future rules is not a safe approach. If and when legislation passes, amended returns may be an option, but proactive compliance with current rules is always the lower-risk path.
Practical Steps Before You Use This Product
If SoFi's tokenized deposit is appealing for the yield, that's understandable, 4.4% on a dollar-stable position is competitive. But go in with your eyes open on the tax side.
Before you deposit
Confirm how SoFi will report income to you and when. Ask whether they will issue a 1099-INT, 1099-MISC, or a digital asset-specific form. Set up a spreadsheet or use a records system that captures every yield credit with its date and dollar value. Decide on your cost basis method before you accumulate multiple lots, as changing methods mid-year can be complicated.
When you convert to a stablecoin
Treat each conversion as a taxable disposal. Record the number of tokens given up, your cost basis in those tokens, the date of conversion, and the dollar value of the stablecoin received. Even if the net gain is a few cents, the IRS expects it to be reported on Form 8949. Aggregating many small conversions into a summary line is permissible under certain conditions, but individual records must still exist.
At tax time
Pull together all yield income records and report them as ordinary income. Calculate gain or loss on every conversion event. If SoFi provides a 1099, reconcile it against your own records; discrepancies between your records and a 1099 should be resolved before filing, not ignored. If the numbers are complex, consider working with a tax professional who understands digital assets.
Source: Decrypt
Frequently Asked Questions
Is the 4.4% yield from SoFi's tokenized deposit taxable?
Yes. Under current IRS rules, yield credited to a digital asset position is ordinary income in the year you receive it. The taxable amount is the fair market value of the tokens at the time of each credit. You owe income tax at your marginal rate, and this income should be reported even if you don't convert or sell anything.
Does converting a tokenized deposit to a stablecoin trigger a taxable event?
Almost certainly yes under current law. The IRS treats digital assets as property, and exchanging one digital asset for another is a disposal that triggers a capital gains calculation. Even if both assets are pegged to the dollar, you must calculate and report any gain or loss on the tokens you give up.
What is my cost basis in the yield tokens I receive?
Your cost basis in yield tokens equals the dollar value you included in ordinary income when you received them. So if you received five tokens worth one dollar each and reported five dollars of income, your cost basis in those tokens is five dollars. That basis offsets any future gain when you dispose of them.
Will SoFi send me a tax form covering all of this?
SoFi may issue a 1099 for the interest or income component, but there is no guarantee it will capture every taxable event, particularly conversions between token types. You should maintain your own records regardless. A 1099 is a starting point, not a complete tax filing solution for a product of this complexity.
Could future legislation make stable-value token swaps tax-free?
Some US legislative proposals have included de minimis exemptions or favourable treatment for stable-value digital asset transactions, but none are enacted law as of now. Filing your taxes based on rules that don't yet exist carries real risk. Keep records and comply with current guidance; you can revisit if the law changes.