Hollywood, Florida, February 14, 2018: Bitcoins are making their way into real estate transactions in South Florida and causing ripples in the area of estate planning.

A condominium in Miami was purchased in December of last year using only Bitcoins. The real estate transfer was for a condominium which sold for 17.741 Bitcoin, or the equivalent of US$275,000. Some Bitcoin-associated real estate deals in the past involved the conversion of the digital currency into cash, but this exchange was completed entirely with Bitcoin, with no credit or cash involved.

Bitcoin enthusiasts say that a major benefit of Bitcoin-only real estate deals (as opposed to traditional mortgage or cash exchanges) is a significant reduction of the closing window. In a traditional real estate sale, once the buyer and seller agree on a price, there is usually a 30-day window to reach the closing, mostly to resolve financial matters as well as any physical defects with the property. In the case of the Bitcoin exchange, it only took 11 business days to go from contract to closing. While it may seem that investing in Bitcoin is a good idea because a few real estate transactions have involved Bitcoin, the vast majority still take the traditional route (cash or mortgage transactions).

For federal tax purposes based on IRS Notice 2014-21, virtual currency (such as Bitcoin) is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. Thus, for tax purposes, Bitcoin is treated like tangible property you own like a vehicle or a painting.

An increase of real-estate transactions using Bitcoin means people need to be aware of the tax consequences related to such transactions and how that might affect their estate plan, especially after they pass away. For example: If your Personal Representative/Trustee retains your Bitcoin it would not be considered income. However, if your Bitcoin is converted to cash following your death, it must be declared as income on an estate tax return. IRS “Form 1041, U.S. Income Tax Return for Estates and Trusts”, is required if the estate generates more than $600 in annual gross income.

Bitcoins are stored in a virtual wallet which uses a string of random characters called a “public key.” This public key is a code used for sending and receiving the cryptocurrency in business transactions. The owners, however, have a “private key” to access the contents inside the wallet. If an individual passes away owning Bitcoins, but never passed on the private key, his heirs may know about the existence of the wallet, but will never be able to gain access to the Bitcoins inside. To prevent this, the Bitcoin owner, during his lifetime, must ensure that someone they trust gets a copy of the private key by writing down the code, storing it on a local drive or cloud based software, or enlisting the services of a private company that manages cryptocurrency.

In a digital age, where changes in technology converge with changes in the law, a tech-savvy attorney can help you make the best decision for you and your family. Contact OC Estate and Elder Law at (954) 251-0332 or [email protected] to learn more about how changes in the law may affect your estate plan and your wallet.