Are you interested in buying or selling property with Bitcoin, or other various altcoins, but don’t know where to begin? Here are 3 important things you must know.
1. Tax Implications
Let’s say for a moment you are an early investor of cryptocurrencies and have done well for yourself. You were able to buy Bitcoin for $600.00 in 2016 and are now sitting on a substantial return on your investment. Knowing that the market is quite volatile, you decide it is prudent to diversify your portfolio and now are looking to acquire some real estate in return.
The first thing you have to know when purchasing property using Bitcoin, or any other cryptocurrency, is that you will be responsible for paying Capital Gains Tax. The reason for this is because the IRS considers cryptocurrencies as property, not currency, for tax purposes.
According to David Kemmerer, Co-Founder of Cryptotrader.tax
“ Spending Bitcoin on goods triggers a “taxable event”, and at that point, you will realize that capital gain from the increase in the value of your BTC. You would need to report this gain on your taxes on form 8949.”
At the present time of this writing, BTC is worth approximately 5k so the buyer in this example would be responsible to pay the IRS a significant portion in capital gains, based on their original cost basis at $600.00.
It is highly recommended that you speak with a Qualified Cryptocurrency Tax Professional for advice. This capital gains issue is something every buyer looking to use cryptocurrency to buy real estate must consider since this added cost is not involved in a standard real estate deal involving traditional fiat money.
It goes without saying this is an important issue that needs to be addressed until governments work to enable crypto friendly tax regulations.
2. Buyer can Pay with Cryptocurrency, Seller can receive Traditional Fiat
The second thing that is important to be aware of is the fact that a seller has a few options when it comes to a cryptocurrency transaction. If the buyer wishes to pay with a cryptocurrency, the seller can:
- receive cryptocurrency in return
- have the cryptocurrency converted to USD, before ever receiving the money
Many sellers are reluctant to have a buyer pay for their house with cryptocurrencies because they don’t want to receive any cryptocurrencies in return. Instead, they prefer to receive traditional fiat such as USD.
Those seller’s fears would diminish if they knew a buyer could pay in cryptocurrency and the seller could have that crypto converted into USD for them.
In order for a Crypto to USD real estate transaction to occur, however, it is necessary to find an escrow company that is crypto friendly. The way it works is that these escrow agencies will use a payment processor such as Bitpay to convert the Buyer’s cryptocurrency into the seller’s preferred method of payment.
According to Jamal Raees, Business Development, BitPay, Inc, their company is a perfect solution for handling such conversions involving real estate.
“Cryptocurrency is real and here to say. Most don’t realize that millions of dollars worth of properties have already been purchased in bitcoin using our company, without having to deal with the headache of handling the cryptocurrency. Sellers, real estate agents, and escrow companies can use our services to accept cryptocurrency as a form of payment without any price volatility risk, and still receive the exact purchase price of the house in cash in as little as one day, from anywhere in the world.”
After Bitpay converts the crypto to USD, the funds are sent to the Escrow Company. From there, once all the standard conditions of the real estate transaction are met, escrow will release the payment of funds and all the parties will be satisfied.
This could be useful to know if you are a seller and are still on the fence in allowing a purchaser to pay in cryptocurrency. If anything, this can increase the exposure of the seller’s listing and increase the potential pool of buyers for their property.
3. Blockchain Technology is at your Disposal
I’ve written in depth about the benefits blockchain technology will have in disrupting the real estate industry so I won’t be discussing that further. If interested you can read more about it here and here.
What I will be discussing, however, is the fact that buyers and sellers can presently utilize blockchain technology in their real estate transaction, even if neither party wants to use cryptocurrency. The technology is at your disposal.
It is first important to note that paying any or all of the real estate deal using cryptocurrency doesn’t mean that the entire real estate deal itself is also utilizing blockchain technology. This is a common misconception. Crytpocurrencies are just one aplication of blockchain technology but you can still complete the real estate transaction using traditional methods (with crypto or without). However there is another way you can do things.
You can fully embrace the blockchain revolution in your real estate deal by utilizing smart contracts via blockchain technology through Propy’s Transaction Platform.
Propy’s Transaction Platform
Propy, a company based in Palo Alto, has created an all in one Real Estate Transaction Management Platform which allows buyers, sellers, and all involved intermediaries, to connect and create their own deal flow.
This deal flow is visible to all the parties and everyone can see in real time the status of the transaction giving way to full transparency and instant notifications. Every step along the way is initiated by smart contracts and upon completion, the sale is respectively recorded on the blockchain registry.
Transactions executed on the Propy Transaction Platform are legally binding, provide additional proof of ownership, and safeguard the transfer of ownership via traditional legal instruments. Even if you do a regular real estate transaction, you can utilize smart contracts on the blockchain to complete the deal faster and more efficiently.
Whether you decide to utilize this technology is up to you. But you should be aware such technology does exist and that it will continue to get more popular as the market matures and more adoption takes place.
In the end, these are 3 things buyers and sellers must know when buying property with bitcoin or other cryptocurrencies.
- You will be taxed
- Sellers can have cryptocurrencies converted into fiat for them
- Blockchain technology is at your disposal with any real estate deals you wish to engage in (crypto or non-crypto).
If you have any questions regarding this process or would like me to help you with any of your home buying needs, feel free to send me an email at email@example.com. You can also find me on twitter: VarunBajaj, Esq,