Currency of the Future: Crypto in Real Estate
The first transaction using cryptocurrency in the world was from the sale of two pizzas from a local Papa John’s franchise in Jacksonville, Florida in 2010. Amount paid? 10,000 Bitcoin (BTC).
Fast forward to 2021, BTC and other forms of cryptocurrency are now accepted to buy things from small cups of coffee to purchasing real estate. As the influence and value of crypto continues to increase exponentially, the question of whether it will be the main form of tender over the dollar is raised. Moreover, we question not if, but rather when, this digital currency will be used in the day to day of our transactions.
Tax implications of using crypto include capital gains tax, with varying rates dependent on the length that you hold your crypto for and your annual income. The IRS views crypto as property, and any appreciation that comes with it has to be paid for through this tax collection.
To convert crypto from one asset to another, when one purchases real estate in particular, the lines are not so clear cut for eager new homeowners that are not aware of the impact of such a conversion. Say for example your initial investment of $10k of BTC has ballooned to $50k in value. The buyer who purchases a $50k house using crypto converted into cash would be responsible for paying the capital gains tax on the $40k of appreciated gains. Depending on your filing status and income, this may also come with net investment tax.
While crypto is a new and exciting way of trade and investment, it’s important to be cautious and aware of how spending it can impact your personal finances.