Bitcoins can be used to purchase condominiums in New York City but comes with its own set of challenges, including security concerns. Conversion of virtual currency to cash is often required to complete the sale of the property.
Use of Blockchain Cryptocurrency Technology in New York City Real Estate Market
- Ethereum blockchain and Bitcoins can be used to purchase NYC real estate such as condominiums but may involve several parties such as real estate brokers, mortgage brokers/lenders, real estate attorneys, and title companies. This transaction is best done with professionals who have a good understanding of Bitcoins and can facilitate a smooth process.
- Lenders such as Bank of America, facilitate the use of bitcoins once there is proof of liquidation to ensure there is cash for the down payment and closing costs while title companies provide transparency by handling the disbursement of funds and ensuring that the property’s title is clean and transferable.
- Real estate brokers such as Blooming Sky can help with using blockchain cryptocurrency technology to purchase property in NYC by helping to identify the property, calculate the exact bitcoin and the USD equivalent, set up LLC to protect privacy, make down payment, work with a lender, schedule closing, exchange bitcoin and close the sale. Law firms such as Dilendorf Law Firm also help with this type of transaction.
- It’s easy to purchase a condominium in Manhattan using Bitcoin through LLCs.
Examples of Real Estate Purchases with Bitcoins
- In 2018, Developer Ben Shaoul at Magnum Real Estate accepted bitcoins for purchases and deposits for apartments but the bitcoins were converted to cash to complete the sale. Bitcoins were accepted early in the process, but cash conversion had to be done to complete the sale.
- It was also noted then, that the conversion was necessary because the government did not accept bitcoins for New York City and New York State real estate transfer taxes. This form of payment was not accepted by NYC’s Department of Finance.
- The digital currency also posed challenges when trying to get a mortgage, as banks did not accept proof of funds as bitcoin ledgers.
- Purchasing apartment units with Bitcoins seemed to be more problematic than the traditional route of using cash because of the uncertainties involved.
Regulations for Bitcoin and Other Virtual Currencies
- In the US, Bitcoin and other digital currencies are regulated by Financial Crimes Enforcement Network (“FinCen”), US Office of Foreign Assets Control (“OFAC”), Commodity Futures Trading Commission (“CFTC”), Internal Revenue Service (“IRS”), and Individual states.
- All-Bitcoin transactions for real estate take little time for settlement, is accepted by some escrow agent, but is unsuitable for 1031 exchange. It is also recommended that sellers conduct KYC/AML checks.
- A bitcoin-USD transaction takes 1 -2 business days in settlement time, all escrow agents accept payment via this means, and 1031 exchange is suitable. A KYC/AML check is usually done by the bank or third-party service.
- All-Bitcoin transactions and Bitcoin-USD transactions both require buyers to “realize gain on the disposed crypto, as it is considered property.”
- Sellers should ensure that buyers’ names aren’t listed on sanction lists such as SDN, OFAC, and PEP lists as part of their checks that the Bitcoins’ title being used is clean because sellers are unlikely to get insurance against such risks.
- In New York, any person holding the virtual currency for others in the sale process for real estate is required to have a BitLicense. However, this is expensive, and many title companies as well as lawyers don’t want to do this because of security reasons.
- The New York State Department of Financial Services has recently granted conditional BitLicense to PayPal to be one of the holders of cryptocurrencies.
- There are also tax issues relating to purchasing real estate with all-Bitcoins because both the seller and the buyer are likely to “face undesired tax consequences.”
- Bitcoin and other virtual currencies are treated as personal property by the IRS, which means “both buyer and seller must pay income taxes to the extent the fair market value of the property received exceeds their adjusted basis in the property surrendered.”
- Another issue that may arise in an all-Bitcoin transaction is the “liability for transfer taxes (such as the Real Property Transfer Tax in New York State and New York City, as well as NYC’s “mansion tax”) and federal and state withholding taxes if a transaction involves a non-US-resident seller, which must be paid strictly in USD.”
Attorney General’s Role in Sale of Condominiums
- Under the Martin Act, New York State’s Attorney General ensures that units being bought are a “fair and honest representation” of what they claim to be. Therefore, a relationship is established with the sponsor and not with co-op corporations or condo associations. In the absence of a sponsor, there’s no interaction.
- The attorney general acts as a watchdog for new condominiums.
- A sponsor who “owns units within a building” and wishes to sell them will have to “file an annual amendment with the Attorney General’s office providing certain facts and circumstances about the co-op or condo, and his own financial situation.”
- The documents required to file with the Attorney General’s Office include: “the identity of all principals of the sponsor; how many units they own; what percentage of the total units they own; identification of the actual units; identification of the maintenance charges for those units; and identification of the rents received for those units, if they are occupied by renters.”
- According to “Andrew Freedland, an attorney with Anderson Kill, a law firm based in New York”, the filings help to protect the buyer.