For most of its 10-year history, serious interest in Bitcoin was largely limited to computer geeks and cybercriminals.
(According to Europol, “Bitcoin [is] the currency of choice in criminal markets, and as payment for cyber-related extortion attempts.”)
In the past 12 months, however, the value of Bitcoin has skyrocketed – from $1,000 per Bitcoin in January 2017 to $18,708 on December 18.
Thanks to this meteoric rise, the digital currency has become a sought-after investment for a growing number of mainstream financial institutions and everyday people.
It’s also fueling speculation that Bitcoin may soon be as widely accepted as the U.S. dollar for transactions like buying a home and paying a mortgage.
Is this speculation realistic or merely wishful thinking?
Can you buy a house today with Bitcoin?
Can you use it to pay a mortgage?
It’s Been Done
In fact, Bitcoin has already been used to purchase properties in California, Texas and Manhattan.
In 2014, a buyer used 2,739 Bitcoins to buy a $1.6 million home site in Lake Tahoe.
In 2017, a single-family home in Austin, Texas was purchased with Bitcoin. (The buyer used Bitcoin, but the seller had it converted to dollars during the transaction.)
In September 2017, British entrepreneurs Michelle Mone and Doug Barrowman unveiled a Bitcoin-priced real estate development in Dubai.
The Aston Plaza and Residences includes 2.4 million square feet divided between two, 40-story residential towers.
Initially, studio apartments were selling for as little as 30 Bitcoins, which then equaled $133,918. Four months later, with the value of 30 Bitcoins having risen to $560,000+, the price of most studios had been adjusted to around 7 Bitcoins.
Should You Use Bitcoin to Buy a House?
So the answer to the question, “Can I buy a house with Bitcoin?” is yes – as long as you can find a seller willing to accept the digital currency.
You can also buy a house with gold, stocks or Beanie Babies if a seller is willing to accept them.
(To date, most sellers have not technically “accepted” Bitcoin. Though some buyers have paid in Bitcoin, the sellers immediately exchanged them for U.S. Dollars.)
But a better question might be, “Should I buy a house with Bitcoin?”
For now, the answer is: “Probably not.”
First, because Bitcoin is not “printed,” distributed or controlled by a central authority, its value tends to fluctuate wildly. That makes it difficult for the parties to a transaction to set prices in advance.
Second, Bitcoin transactions are essentially cash transactions.
If you mistakenly send someone 10 Bitcoins – or your hard drive crashes or your software is infected by a virus – you’ve probably lost those 10 Bitcoins forever.
You can’t dispute the transaction with your bank or credit card company. It’s like losing a stack of hundred-dollar bills on the street.
Finally, Bitcoin (and the other 900+ virtual currencies) are not widely accepted.
Mortgage Lenders Don’t Accept Bitcoin
You may be able to make a down payment or purchase a house outright with Bitcoin, but you can’t use it to pay the mortgage.
U.S. mortgage lenders and servicers accept payment only in dollars. That may change someday, but right now, there’s no incentive for them to accept Bitcoin.
The value is volatile and the cost of converting Bitcoins to dollars would add another expense to the mortgage process.
(For these same reasons, you also can’t make mortgage payments in gold or Van Gogh paintings.)
You might find third parties willing to help you pay your mortgage with Bitcoin, but it appears these companies are merely converting Bitcoins to dollars before paying the lender.
In that case, it would probably cost more to pay a mortgage with Bitcoin than with dollars.
A Tax Problem
There’s one more issue with using Bitcoin to buy a house. The Internal Revenue Service (IRS) does not recognize Bitcoin as a real “currency.”
According to IRS Notice 2014-21, “Virtual currency is treated as property for U.S. federal tax purposes.”
Instead, the IRS treats Bitcoin as an asset – like gold, stocks or bonds.
If you sell Bitcoins to buy a house, profits from the sale will be subject to either the short-term or long-term capital gains tax.
If the Bitcoins were held longer than 12 months, a 15% tax rate will apply. If they were held for less than 12 months, the rate could be as high as 20%.
So using Bitcoin to buy a home could cost you much more than using dollars.
The only exception would be if the seller treated Bitcoin as a real currency, and never asked you to convert it to dollars.
Unless/until Bitcoin is widely recognized as a legitimate “currency,” it’s unlikely to become a popular way to pay for real estate.
Some of the very features that make Bitcoin attractive to computer geeks and cybercriminals – limited supply, no central authority to control distribution and influence its value – make it an unattractive payment method for home purchases.