PREMIER BUSINESS & FINANCE
BITCOIN CRAZE
REAL ESTATE NEWS
AND WHAT IT MEANS FOR REAL ESTATE - By: Christina Dube -
Bitcoin is complicated. The concept of virtual currency can be difficult for some people to grasp but more and more, we are hearing about bitcoin becoming an accepted form of payment for everyday goods and services. While there is much to discuss regarding cryptocurrencies, this article is going to focus on issues surrounding the use of Bitcoin for Real Estate purchase.
WHAT IS BITCOIN?
WHAT IS THE BENEFIT OF BUYING A HOME WITH BITCOIN?
A virtual global currency not regulated or controlled by a central bank;
If a buyer was an early adapter to the bitcoin game back in 2008,
no government oversight, no reporting. Simply throw out the notion of currency based on a country’s economy to accept this notion easier. While
they would have payed pennies per unit and have since become multi-millionaires or billionaires. For these buyers the benefit of using
intangible, similar, to the value we assign to paper dollars, bitcoin’s value is
bitcoin to purchase a home is simply because, they have an opportunity to
very real.
exchange volatile cryptocurrency for more stable assets such as real estate. The Transaction works like an all cash offer but a hand full of start-ups like Unchained Capital, are offering loans against bitcoin holdings. However,
IF THERE IS NO CENTRAL BANK, WHO ADMINISTERS THE CURRENCY? Computers. They are virtual administrators, referred to as “miners” who create new transactions, adding to the blockchain’s ledger. Bitcoin transactions are handled by online merchants like BitPay, who will guarantee the exchange rate for only 15 minutes. Payments not made in that window are canceled and rates are recalculated.
rates are typically over 10% and repayment is very short (3-12 months). The bigger issue for buyers using their Bitcoin at all, are the taxes. The IRS didn’t release guidelines on how to handle cryptocurrency until late 2014. The IRS Notice 2014-21 defines virtual currency in the US as ‘exchangeable’. It will be taxed just like US dollars and treated as property. Therefore, capital gains tax applies to accessed funds. If the cryptocurrency is held for less than
One of the riskiest aspects of cryptocurrency is that value fluctuates widely and often. Because of this, buying anything using Bitcoin is done quickly. On December 17th, 2017, Bitcoin’s price index was $19,783.21 but only a
a year, income tax will also apply. So, buyers considering Bitcoin for a home purchase or large down payment could be hit with a huge tax bill, assuming they are declaring those transactions.
few days later, it had fallen to around $11,000. This volatility causes a lot of uncertainty around price structuring, considering weeks required to finalize a sale in real estate.
IS BITCOIN THE FUTURE?
WHAT IS THE BENEFIT OF SELLING A HOME FOR BITCOIN? For sellers, advertising the acceptance of Bitcoin may reach more potential buyers. Many sellers require buyers to convert their Bitcoin to cash, often before offers are even considered, so in reality, there isn’t much risk to the seller.
A quick internet search will yield dozens of blog postings about speculation that Bitcoin users have been lying to the IRS on their taxes. One possibility could be because of the complicated nature of calculating exchange rates and tracking Bitcoin transactions. Another could be due to the historical nature of bitcoin and its well documented use for criminal activity. Indeed, hours of searching the web for individuals who have bought or sold a home using cryptocurrency yields a very anonymous group of people who simply don’t go on record.
Other sellers may want to keep the cryptocurrencies to add to their portfolio. Back in 2014, the first large real estate purchase was made by an unnamed individual from the San Francisco Bay Area using Bitcoin. A 1.4-acre lot in Lake Tahoe’s prestigious, Martis Camp sold for 2,739 bitcoin, valued at 1.6 million US dollars at the time. According to Tahoe realtor, Maureen Warmerdam, “the average lot in Martis Camp is still around 1-2 million”. As of 1:00 pm on June 9th, 2018, 2,739 bitcoins are valued at $20,849,158. While there is no information on if the seller kept the currency as “bitcoin” or cash, you can imagine the allure for potential investors looking to acquire bitcoin.
According to Credit Karma, “5% of Americans report owning and using bitcoin but in 2015, only 802 Americans reported bitcoin transactions on their taxes” (Reiff ). With the governments realization of cryptocurrency, and the huge gains seen in 2017, we can safely speculate that the US government will be investing more resources to collect their share. This doesn’t mean bitcoin and cryptocurrency will disappear, but the structure on usage and taxes for large purchases like real estate should require any seller or buyer to hire a cryptocurrency-experienced tax consultant, realtor, and attorney.
Reiff. April 2018. Few Reporting Bitcoin Holdings www.investopedia.com/news/irs-says-fewer-100-people-have-reported-bitcoin-holdings-so-far
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