Buying and Selling with Bitcoin
Recently, we have received some questions about buying and selling homes with Bitcoin. While these types of transactions are not very common in the state of Washington, but the trend of home shopping with Bitcoin is starting to track upwards. Before we dive into Bitcoin please remember that lenders do not work with crypto-currencies so these deals are treated as cash sales and there’s no way to show proof of funds which is a legal requirement of escrow.
What is Bitcoin?
Bitcoin is a digital currency that can be used to purchase goods and services, including large purchases such as real estate. In functionality Bitcoin is like the digitized dollar we are all used to seeing in our online bank accounts but is fundamentally different in how it gains its value. Traditional money, such as digital and tangible dollar bills, is centralized, meaning it is stored in banking institutions and given its value by the government. Bitcoin is independent of any centralized bank: it exists in a transparent online ledger and gains its value from being compared to the medium backing, gold and silver, that provides the dollar with its value. The first Bitcoin transaction was 10,000 Bitcoins for two Papa Johns pizzas. At today’s exchange rate those pizzas would be worth roughly $470 Million USD.
Why is Bitcoin popular?
The two primary draws of Bitcoin are the autonomy it allows and the security it provides, by not linking personal information to any given transaction. Users of Bitcoin do not face the same limitations as users of traditional currency such as not needing bank approval before sending money. Similarly, users of Bitcoin do not need bank or any other kind of approval to send money a fellow Bitcoin user. Bitcoin also gives users the ability to function outside of brick-and-mortar bank hours, sending money electronically, full access to their funds, and no banking fees associated with any transaction. This provides ease for customers in today’s busy world.
How do you buy a house with it?
All you need to purchase a home with Bitcoin is for both parties to agree to use this alternate currency. One of the reasons people are opting to purchase homes with Bitcoin is because once all parties have signed and the transaction is complete it takes as little as 10 minutes to transfer funds. However, because Bitcoin transactions are non-reversable it is important to make sure the property has clean title, that all documentation has been handled correctly and generally that the second party is trustworthy. If litigation does arise both parties must be willing to comply with the decision because unlike with traditional bank transactions, funds cannot be returned. Purchasing with Bitcoin also is not currently accommodated by mortgage companies and should be considered a cash type property sale.
Can I turn Bitcoin into USD? And How is it Taxed?
If both parties agree to a Bitcoin transaction and the seller is looking to convert their Bitcoin proceeds to USD there are several apps and services that will exchange the funds which can be wired directly to a bank account. Bitcoin tax rates depend on the specific country but in the United States the IRS considers Bitcoin as property and the transactions will be taxed as capitol gains. A Bitcoin consultant could be helpful in better understanding of what the final taxes will look like and guide a seller in converting their Bitcoin to USD.
With the increased popularity of Bitcoin and major companies like Tesla now accepting the cryptocurrency in exchange for cars, the idea of purchasing real estate with it is becoming more mainstream. A recent realtor.com article listed 11 homes for sale with pricing listed in Bitcoin. Here is a helpful Bitcoin conversion calculator to help you in determining a home’s cryptocurrency price.
If you would like to learn more about Real Estate Investing in the Age of Bitcoin, here is a great article at CREO Online.