Cryptocurrencies like Bitcoin, Ethereum, and Dogecoin are popular, but are they appropriate for rent payments? You may have seen other landlords offering deals to tenants who send them crypto payments, and given how the value can increase 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’s 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 crypto, there are several things to think about first.
You will owe capital gains taxes
If you want to collect rent online, accepting Bitcoin is not the answer. Crypto is not legal tender; it’s considered a taxable asset. You will owe taxes on the cryptocurrency you receive for rental income if you generate a profit. Technically, just holding crypto for a week might be all it takes for the value to increase.
Maybe you like the idea of owning a digital asset that will increase in value. That’s great, but those gains will be taxable income. How long you hold your crypto before profiting will determine how much you owe in taxes. If you hold it for less than one year, you’ll owe short-term capital gains tax. If you hold it for one year or more, you’ll owe long-term capital gains tax. There’s no way around this.
If you don’t plan to profit from crypto, there’s no point in using it in the first place. Accepting crypto just because it’s popular will prove to be a frivolous expense.
Crypto can complicate your financial life
Getting into crypto will bring you into a highly complex tax world that will require a lot of attention and calculations. You will almost certainly need to hire a CPA to do it right.
Imagine getting your taxes done and having your CPA work hard to calculate what you owe for your cryptocurrency investments, and your gains are so small it’s not even worth the time it took for you to document everything. That’s the likely scenario for landlords who aren’t really into crypto as an investment, and only see it as something “cool” or unique to try.
It’s better to accept rent in the same currency as your bills
Once you start collecting rent in cryptocurrency, you’re going to have to perform multiple exchanges that will most likely diminish the actual amount of money you keep. Between broker’s fees, exchange rate differences, and other random fees, accepting rent in cryptocurrency will end up costing you more money.
If you’re a serious crypto investor and already have a game plan, plus a strong grasp on how to profit from crypto, you might be okay. However, it will prove expensive to the average landlord.
Cryptocurrency is unpredictable
Don’t be fooled by the news reports that show how Bitcoin has skyrocketed overnight. That’s not the norm, and it has also crashed back down. Bitcoin isn’t stable. You might accept $1500 in Bitcoin for rent from a tenant today, and in a few weeks, it might only be worth $1000 when you go to pay your mortgage. That’s the equivalent of giving your tenant a $500 discount on rent.
Crypto is hackable
Perhaps the biggest threat to holding crypto is the fact that it’s hackable and not insured. When you deposit rental income with your bank, your deposits are FDIC-insured up to a certain amount. Cryptocurrency isn’t insured. If your holdings are hacked or stolen, you’ll never get it back. By nature, crypto is untraceable, so your chances of finding the hackers are slim to none.
Bitcoin and other cryptos take days to become available
A major downside to accepting rental 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 and convert it to a currency you can actually use to pay your expenses.
The only way this time delay won’t matter is if you plan on using crypto as an asset rather than a currency. There is nothing convenient about Bitcoin or any other crypto, so unless you’re investing, you’re wasting your time.
Should you accept crypto rental payments?
If you’re going to quickly convert your crypto to USD to pay your mortgage, it doesn’t make sense to accept rental payments in cryptocurrency. Doing this will just make your finances more complicated.
However, if you’re an avid crypto investor and you happen to be a landlord as well, then accepting rent in crypto payments could be the right move.