New reporting rules to impact some property sales

Changes to the way some real estate sales are reported are set to go into effect Saturday, March 1, primarily for owners who put their property into an LLC or trust.

Under the Financial Crimes Enforcement Network, a new federal rule aims to combat money laundering by tracing cash purchases of property, most commonly by a limited liability company or a trust.

Heidi Gilmore, a real estate attorney with Brockstedt Mandalas Federico LLC, estimates about 10 out of every 100 transactions will fall under the new rule. Buyers frequently seek out properties in the resort towns for investment purposes.

“Are you a cash buyer of residential real estate, and are you buying in the name of an LLC or a trust? If so, this is going to impact you,” she said. “Also if you’re an individual who owns real estate and want to put it in your LLC or trust, this also impacts you because it's now being reported to the federal government.

“It kind of feels like another Big Brother is watching you,” she said. “You might not have anything to hide, but it really feels intrusive.”

Individual buyers are exempted, Gilmore said, since the new rule targets people who put their real estate in an LLC or trust. Some property owners prefer to use an LLC for liability reasons if they rent their properties.

“I think we’ll have a higher number of people impacted by this, such as an individual who moved here and bought their property in their own name and now wants to create an LLC in order to rent the property out for investment purposes,” she said. “That deed transfer for them into their LLC will have to have a FinCEN filing.”

Some people may find the new rule intrusive, she said, and they may want to use their own name instead of going to an LLC.

“You know the IRS is always watching you, but now the treasury division is tracking bank account information," Gilmore said.

One exemption includes those who file a 1031 tax exchange. In those cases, she said, a property owner takes proceeds from one sale and rolls it into another real estate sale.

“This is already regulated by the IRS, so the money is tracked,” Gilmore said.

Any cash bank deposit greater than $10,000 is also tracked by a suspicious activity rule that every bank files with the treasury.

Gilmore said people have brought her cash for settlements – one brought in $350,000 a few years back – but she tells them to take it to the bank, get the SAR clearance, and bring back a check for settlement.

“It’s a rarity, but you still have people who try to do it,” she said.

The new rule was supposed to begin last November, but the start date was pushed to March 1.

Gilmore said her office has been preparing for the new changes over the past year. On the plus side, she said, the original document was 25 pages long, but it is now down to only five.

“The biggest detail for me is the buyer’s source of funds. I have to give the bank account, the bank name and the ADA number for how they are giving me money,” she said.

If they bring a check or were gifted funds, she said, the information has to be filled out.

Both the seller and buyer information have to be filled out. A seller who takes the proceeds from a sale and rolls it into an LLC or trust still has to show where they got the money for the purchase.

“Even if they were exempt from the [new rule] when they bought, now you’re not exempt and you still have to give that information as a seller. It doesn’t just go away,” Gilmore said.