Cryptocurrencies like Bitcoin, Ethereum, and Dogecoin are popular, but are they appropriate for paying rent? You may have seen other landlords offering deals to tenants who send them crypto payments, and since the value can go up quickly, it seems like a good way to make your rental income more profitable.
Although this can be an excellent investment for some people, it is extremely risky and could end up costing you more money in the long run. If you've been thinking about incentivizing your tenants to pay rent in cryptocurrency, there are several things to think about first.
-
You will owe capital gains taxes
If you like collect rent online, accepting Bitcoin is not the answer. Crypto is not legal tender; It is considered a taxable asset. you will owe taxes in the cryptocurrency you receive from rental income if you make a profit. Technically, holding cryptocurrencies for a week might be all it takes for the value to rise.
Maybe you like the idea of โโowning a digital asset that will increase in value. That's great, but those earnings will be taxable income. How long you hold your crypto before you make a profit will determine how much you owe in tax. If you have it for less than a year, you will owe taxes on short-term capital gains. If you have it for a year or more, you will owe long-term capital gains taxes. There is no way around this.
If you do not plan to profit from cryptocurrencies, there is no point in using them in the first place. Accepting cryptocurrency just because it is popular will prove to be a frivolous expense.
-
Crypto can complicate your financial life
Getting into crypto will take you into a very complex tax world that will require a lot of attention and calculations. You will almost certainly need to hire a CPA to get it right.
Imagine doing your taxes and having your CPA work hard to figure out what you owe on your cryptocurrency investments, and your profits are so small it's not even worth the time it took you to document everything. That's the likely scenario for owners who aren't really interested in cryptocurrency as an investment, only seeing it as something "cool" or unique to try.
-
It is better to accept the rent in the same currency as your invoices
Once you start collecting rent in cryptocurrency, you will have to make multiple trades that will likely decrease the actual amount of money you keep. Between broker fees, exchange rate differences, and other random fees, accepting the cryptocurrency rental will end up costing you more money.
If you're a serious crypto investor and already have a game plan, plus a solid understanding of how to profit from cryptocurrencies, you might be fine. However, it will prove expensive for the average homeowner.
-
Cryptocurrency is unpredictable
Don't be fooled by news reports showing Bitcoin skyrocketing overnight. That is not the norm, and it too has collapsed. bitcoin is not stable. You can accept $1,500 worth of Bitcoin for rent from a tenant today, and in a few weeks, it could be worth just $1,000 when you go to pay off your mortgage. That's the equivalent of giving your tenant a $500 discount on rent.
-
Crypto is hackable
Perhaps the biggest threat to having crypto is the fact that it can be hacked and is not secured. When you deposit rental income with your bank, your deposits are FDIC insured up to a certain amount. Cryptocurrency is not insured. If your assets are hacked or stolen, you will never get them back. By nature, cryptocurrencies are untraceable, so your chances of finding the hackers are slim to none.
-
Bitcoin and other cryptocurrencies take days to be available
A major downside to accepting rent payments in crypto is the fact that you may not have access to your funds for at least ten days. Even then, you still need to transfer it and convert it to a currency that you can actually use to pay your expenses.
The only way this time delay won't matter is if you plan to use crypto as an asset instead of a currency. There is nothing convenient about Bitcoin or any other crypto, so unless you are investing, you are wasting your time.
Should I accept cryptocurrency rental payments?
If you are going to quickly convert your crypto to USD to pay off your mortgage, there is no point in accepting rent payments in cryptocurrency. Doing this will only make your finances more complicated.
However, if you are an avid crypto investor and also a landlord, then accepting rent in crypto payments might be the right move.
