- within Government and Public Sector topic(s)
- with readers working within the Aerospace & Defence and Automotive industries
Summary
Buying residential real estate with all cash through an entity or trust? New federal reporting requirements may apply. The Financial Crimes Enforcement Network (FinCEN) now requires reports on certain all-cash/non-financed residential real estate transactions to prevent money laundering.
Good news: Most traditional home purchases financed with a mortgage are NOT affected.
Does This New Requirement Apply to Your Transaction?
Your transaction must have ALL THREE components:
- Residential Real Estate in the U.S.
- Home designed for 1 - 4 families
- Land to build a home for 1 - 4 families
- Condo/unit for 1 - 4 families
- Co-op shares
- All-Cash Transaction
- No mortgage from a bank or financial institution with anti-money laundering (AML) programs.
- Note: Financing from non-bank lenders without AML programs counts as "all-cash."
- Buyer Is an Entity or Trust
- LLCs, corporations, partnerships, associations
- Most trusts (with exceptions below)
When You DON'T Need to Report
- Exempt Buyers: Publicly traded companies, banks, credit unions, insurance companies, government agencies, and other major financial institutions.
- Exempt Transactions:
- Easements
- Inheritance/death transfers
- Divorce settlements
- Bankruptcy transfers
- Court-supervised transfers
- Gifts to your own revocable trust (no consideration)
- 1031 exchanges
- Any traditional mortgage transaction
Who Files the Report?
Responsibility cascades down this list (first person performs, they report – or can designate another in writing):
- Closing/settlement agent
- Person preparing closing statement
- Person filing the deed
- Title insurance company
- Person disbursing most funds
- Person providing title evaluation
- Person preparing the deed.
Usually, the title company. If no one performs these functions, no report is needed.
Filing Deadline and Penalties
- Deadline: The later of 30 calendar days after closing or the last day of the month following the closing.
- Penalties:
- Up to $1,394/day for negligent violations
- Up to $108,489 for a pattern of negligence
- Willful violations: Up to 5 years prison + $250,000 fine
- Records: Keep reports and documents for 5 years.
Estate Planning Considerations
- Likely EXEMPT:
- Transfer on Death Designation Affidavits
- Transfers to your own revocable trust
- Likely REPORTABLE:
- Sales to irrevocable trusts
- Transfers to simple LLCs
- Insurance Note: Update insurance policy to name beneficiaries/trusts as additional insureds to avoid coverage gaps after the death of the insured property owner.
Bottom Line
- Traditional homebuyers with mortgages: These rules don't affect you.
- All-cash buyers using entities/trusts: Ensure the required report is filed within 30 days.
- Title companies/closing agents: You're likely responsible for filing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
