Bitcoin to Real Estate with 1031?

Question

I'm expecting BTC to hit $250k in the next year and am wondering if its possible to transfer this into multiple properties to avoid capital gains and/or income tax (assuming I'm right about the price of BTC, of course).

Christopher Smith · Answer

I think the probability of being able to roll bitcoin gain into real estate under 1031, is roughly equal to the probability of bitcoin hitting 250k in the next year.

Chad W. · Answer

1031 isn't a great option, but leveraging gains on Bitcoin and diversifying into real estate is a great idea. I would look into a collateralized loan from someone like BlockFi. They lend on your Bitcoin holdings with reasonable rates and no credit pulls/reporting.

If you have a W2 job and access to traditional financing you can leverage your Bitcoin holdings for the downpayment. This is a great option assuming the numbers work out and you can service the loan payments. You can keep your Bitcoin, but access your gains tax-free without having to sell.

I think investing in real estate is a nice compliment to the Bitcoin thesis. Protecting yourself from inflation with real assets. Plus, real estate gives you a way to build ongoing income from your Bitcoin stack which is locked away.

Good luck!

Eric Carr · Answer

@Wayne Brooks

What technical analysis have you done to decide this?

With the $360Billion market cap that it just crossed today and the BILLIONS that Square, Paypal, Grayscale, are buying it up by, let alone wall street legends such as Paul Jones and Stanley Druckenmiller, I would say there's not a good chance we will ever see it go below $10k again.

@Tiberiu Gurau

I have been holding Bitcoin for over 6 years and have investigated this. As of now, the IRS wont allow it. But I expect things to change as adoption continues and the IRS continues to provide guidelines and rules around BTC.

One thing you can do is after liquidating your holdings and purchase rental property, is do a segregation analysis and take all the bonus depreciation you can to offset those gains.

Ashish Acharya · Answer

No 1031 on this transaction. Can be deferred with OPZ if done correctly.

Wayne Brooks · Answer

Maybe $2.5k....

Paul Moore · Answer

@Tiberiu Gurau.  I think this @Eric Carr's idea is great. If you can reinvest your profits in a high-depreciation real estate asset, you could potentially shield your gains (at least in that year). Then you could later 1031 exchange (in some cases) from that asset into another real estate asset to kick the capital gains can down the road.  And if you want to stay passive at that point you could invest in a DST to continue the 1031 process and perhaps swap until you drop (making passive income along the way).

Some highly depreciating assets include mobile home parks and modular self-storage. There are others. Leverage can allow bonus depreciation to create over 100% losses in the first year of an investment (100% of the amount invested).  How? Because an asset with (say) 50% depreciation in year one that has (say) 60% debt can create a 100%+ loss. I've run this by four CPAs/Tax Strategists to confirm this math on an investment in a modular self-storage asset (that happens to be inside a DST as well, making it all the better!).

One aspect of this I love is that while your gains may be taxed at 20% (LT rate), the losses are created at your regular tax rate, which is often higher. Take advantage of this bonus deprecation while you can! It won't be here forever.  And good luck with the Bitcoin value!  I have a few friends who believe in similar price increases.

Griffin Parriott · Answer

I was also hoping to roll my bitcoin into real estate eventually. I'm not quite as Bullish as you on the short time frame. I do see it eventually taking gold's market cap of 9 trillion pricing each bitcoin around $500,000. I don't think it will be for a good 5 years or so.

Eric Carr · Answer

And studied the cycles for the 7 years previous to that. YOU might think it too short, and anything can happen, but I have seen this play out over nd over. Not just Bitcoin cycles, but throughout history.

Let's see what happens.

Eric Carr · Answer

With a $360B market cap - at the moment, which I believe is larger than every major US bank, I think 2021 could prove to be wild.

I do believe BTC is already eating into gold's market. I read a report today that record amounts of money is leaving the gold markets.

Obviously it is going somewhere else. But whether that's because investors found a better investment - BTC, or because they no longer believe the economy is going to crash hard or that we will see massive inflation,  I personally don't know. I am sure that data is out there.

I do know that Raoul Pal had sold most of his gold for BTC and plans to sell the rest today or tomorrow and will move it all into BTC. BlackRock CIO says "Bitcoin will take the place of gold to a large extent"  Blackrock is no joke. Neither is Guggenheim.

I do believe that we are just getting started. Let's see what happens.

Eric Carr · Answer

Bitcoin and Fear Discussion. Fact from Misinformation (biggerpockets.com)

Bitcoin to Real Estate with 1031?

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