Transcription
Hey, folks. Toby Mathis here with Anderson Business Advisors. A new federal rule takes effect on December 1st of 2025, and it's going to change how cash real estate deals are handled. When you use LLCs, trusts, corporations, LPs, or any type of entity, if you've ever bought or transferred property in the name of an LLC, land trust, or even a living trust, you need to hear this because this law will require reporting those deals to the federal government, and there are penalties for noncompliance that are very real. Stick around. I'll explain where this came from, when it starts, who it hit, and how you can stay compliant. And I'll even give you some real life examples to make it. Crystal clear.
So let me just start all the way back. This rule comes from FinCEN, the Financial Crimes Enforcement Network. It's part of the U.S. Treasury Department. For years, FinCEN is worried that bad actors were laundering money through US real estate, especially all cash deals into anonymous LLCs and trusts. They tested the waters with geographic targeting orders in places like Miami and New York, and they found a lot of suspicious activity. So in 2024, FinCEN finalized a nationwide rule that kicks in on December 1st of this year, 2025. From that date forward, certain cash real estate transactions involving entities of trust must be reported. Period. It's no longer optional.
Now, you might remember the whole Corporate Transparency Act and all that drama. There may be some of that here too. So you're going to want to stay tuned into this channel. In fact, like and subscribe so that when new information comes out, we can let you know because it was almost on a weekly basis there for a while before they said they scrapped the CTA. Let's see if they do that too. But let's get back to this.
Who does this rule apply to? So this only applies to residential real estate. What is it? Single family homes, condos, co-ops, townhomes, small apartments have up to four units of fourplex and even vacant land zoned for those can fall into this net. It applies when the property is being transferred to or bought in the name of an entity or trust. So that means LLCs, corporations, partnerships, land trusts, and yes, even living trusts.
If you're buying new property with cash, the rule requires the filing of a real estate report electronically with FinCEN if the following conditions are met. Are you ready? All right. Number one, the property consists of residential real property. And two, the transfer is non-financed. So it's cash deals. If you're using financing, you're not caught by this. They're going to be reporting under the Bank Secrecy Act and other things about knowing their client. Right. And the property is transferred to a legal entity or trust, not an individual. And number four, an exemption does not apply. So there are exemptions.
So the rule applies to transactions of residential real estate in the United States and all territories. Residential real estate is defined as 1 to 4 family properties, condominiums and cooperative apartment buildings. Vacant land where the purchaser intends to build a residential structure for occupancy by 1 to 4 families, and certain mixed-use, like if you have a residential property on top of a commercial, like a mini-mart or something. It's snared in this too. Non-financed, just defined as a transfer that does not involve an extension of, or credit of credit secured by the transferred residential real property and extended by a financial institution that is subject to anti-money laundering requirements. Essentially, non-financed transfers would include cash sales transactions involved private financing. So it's not something that's reporting already to the feds like a big bank. So if you're doing a hard money lender, lines of credit or loans by a bank or mortgage broker that does not have anti-money laundering programs that they have to report to the federal government. So those are the big ones. It's usually cash deals. Just think of it as I'm buying it. I'm not using a major lending institution. I'm using either hard money cash, private borrowing from Uncle Ned, whatever those would be encompassed.
What is a transfer of residential real property and for purposes here? So a transfer of residential real property is any transfer of ownership interest in residential real property that is demonstrated through a deed for an interest in a cooperative housing, which could be through stock or shares, membership certificates or any other contractual agreement evidencing ownership. So if you think, I'm going to do, you know, a transfer of a trust or I'm going to sell some LLC interest or anything, if I am transferring ownership of that real estate, it's probably going to be covered under this, this thing. This definition includes purchases of residential real property for any amount, as well as transfers of ownership for which no consideration is exchanged, such as a gift. So if you're giving it away, it doesn't mean that you're going to get out of this.
But there are exemptions. So let's talk about those exemptions. So I'm just going to give you kind of the list of what the exempted transactions are. So the following are those exemptions. Number one, transfer of an easement. You don't have to worry about this rule. Number two, a transfer resulting from the death of an individual. You don't have to worry about this. Rule number three, a transfer resulting from a divorce or dissolution of marriage or civil union. You don't have to worry about this rule. A transfer, to a bankruptcy estate. You don't have to worry about this. A transfer supervised by a court in the United States. Right? They already know who's involved. Then you don't have to worry about this rule. A transfer, so no, for no consideration made by an individual or with that individual's spouse. Two, a trust in which that individual, that individual's spouse or both of them are the settlors or grantors. So I'm going to stop there just for a second. That means living trust and land trust. So if you own a property already and you're transferring it for no consideration, I'm transferring it into trust or I'm transferring it into living trust. And I am the grantor, then you don't have to be worried about this rule. A transfer to a qualified intermediary under a 1031 exchange. You don't have to worry about this rule. This rule. And number eight, and this is the gray area, a transfer for which there is no reporting person. Now you're going to say, what the heck does that even mean? There's a cascading list of reporting people such as title attorneys preparing deeds, property attorneys handling the transaction and all these things. There are those are reporting persons. And if there's no reporting person because you're doing it yourself, you may not even have to worry about this rule, right? But if you're buying for cash into an LLC or a land trust or even into a living trust, then you're in reporting territory. You might be exempt, but you're definitely covered by the rule. And then you have to see whether there's an exemption applies.
So here's how it works. There has to be a reporting person. A person. So this is again, usually the closing professional, the title company, the escrow agent, settlement agent or an attorney. If they're handling the closing, the person has to file a brand new real estate report with FinCEN. It includes what the property details like the address, the price, how is it paid, the entity or trust details, the beneficial ownership information. So remember the CTA, this is, you know, anybody with a greater than 25% interest or who has control over the entity, then you need the names of that person. The dates of birth, addresses, IDs, citizenship, all of that. If it's a trust, then they need to set lower the trustees, sometimes even the beneficiaries, and then they need to know who signed the paperwork on behalf of the LLC or trust. Now, you don't file this yourself, but you'll have to provide that info and sign a certification saying it's true. And a reporting party, again, these attorneys, title companies, etc. have to report it. But what if there is no closing agent? You do the deed yourself, sign it and mail it into the county recorder. Technically there's no reporting person, so no report gets filed. So that's one of the exemptions. But be careful because that might avoid FinCEN filing. But it could create other risks like title insurance gaps or recording issues. You could make a mistake when you actually do the filing. So it's not something I recommend just to dodge the reporting. And it's what's really important is understand that just by doing this reporting, you're not giving up your anonymity. This is FinCEN. This is the Treasury. If if you own property and it's flowing onto your tax return, they already know it's you, right? You're just filling in the report. Or not even you. Your closing agents typically filing and the report to your attorney or somebody who's preparing documents for this might be reporting it. They already know this information. It's like the CTA. I said this so many times and I got posted online. Now I want my privacy. It's like they already know and it's not a public record.
So let's we'll go over that a little bit more. So what type of information is reported via the real estate report? So on the real estate report, the reporting person must submit the information necessary to identify themselves and of course the property being transferred, the transfer, the transferee entity or the transferee trust, the individuals representing the transfer entity, people that are signing it, right. The beneficial owners of the transfer entity and and or the transferee trust. And so, for example, the reporting person must collect the following and identifying information of any beneficial owner, which is, like involving a transferee entity, like a trust. And by the way, if you have a filed trust, it's treated like an LLC or any other entity. They're going to it's not going to fall underneath the exemption for land trust and living trust. But let's just say so what are they going to report? The name, date of birth, residential address, citizenship, taxpayer, you know, identification number like your Social Security number. E. And if it's an entity that is what you're doing.
So let's let's get into some real life examples. And by the way, I am not if it sounds like I'm not worried about the reporting, it's because I'm not super worried about reporting. What I am worried about is being required to report and not reporting, right? Being in a situation where I mess up because the penalties are so huge as I'll get into. So let's go over some real life examples. I'm Toby and I buy property for cash taking title in my living trust. It's a new purchase that's a covered transaction. If it's not financed, then I'm purchasing in a purchase or transfer trust. It is reportable if a closing professional. So again, the title agent, the settlement attorney, whoever handles the closing, it's that transaction. They must file the real estate report. That's if I'm buying directly in my trust. Remember, the exception is if I already owned the property and I transferred into my trust, then I wouldn't. So that's my number two. I transfer a home that I already own into my living trust. There is no sale. I'm transferring it in there. Then this would be exempt. This is like a gift transfer. There's no payment. The property. I already own it and I move it into trust. No reporting required. And that is per that trust exemption. When I am the settlor or the grantor of that trust.
Let's go into, hey, I buy the property for cash in an LLC. Is that a covered transaction? Yes. It's non-financed purchase into a transferee entity. And this is important. That's if I buy it for cash. If I bought it with a loan with a bank or something, then chances are it's not a reportable transaction because they're already required to have that information as a bank that's covered by the anti-money laundering rules. It is reportable. The closing professional is responsible for filing, not me, the closing professional.
Here's another one. I transfer property I already own into an LLC or a land trust. Is it a covered transaction type? Yes. It's non-financed transfer entity or trust. The reporting required only if the reporting a reporting person is involved. So if it's a title company or attorney that handled the closing, then yes. If I draft and record the deed myself, I do it, do it myself. Then technically there's an exemption there. There's no reporting person, so there's no report even though the transaction falls within the scope. If I transfer it to the land trust and I'm the grantor, then I fall under one of those exemptions, right? I have the trust exemption.
So hopefully you're starting to realize there's a little bit of complexity here. And you can absolutely use a professional like us and run, run these questions by us just to make sure that you're not making a mistake. Or if you're just doing financing with regular institutions, then you don't really have to worry about it, but you want it to be on your radar. But if you are doing these cash purchases, you're buying houses, you're buying them in the name of an entity. Chances are they're going to ask you for this information. It may not be you who's subject to it, but you're going to have to do it if you're doing it yourself. You want to make sure that you're aware of who might have to do the reporting, because they're going to ask you for information. You're going to be caught off guard if you don't know that.
So here's what we need to do, right? First off, mark the date. It's December 1st, 2025. That's when this thing comes in. Be ready to provide ID and ownership details. If you're using an entity or trust, just be prepared. Understand the difference between buying into a living trust with cash is reportable and your own property, and your living trust is exempt. LLCs and land trust, if you're buying in them, are reportable. If you transfer into an LLC, it's reportable. If you transfer it into a land trust, could be exempt. Don't fight your closing agent. They they're going to be required to collect and report this. Just work with them. And there are big penalties that they're facing. Right. The reason that this is so important is because the penalties are like around $1,300 bucks to start. They can go over $100,000 if there's a pattern of negligence. And if you do it, if they did it purposely, like they knew they had to report it, they just didn't do it, then they could be looking at criminal statutes. If you are required to report, you don't do it. Your reporting person, which be kind of tough here, that's usually going to be these other folks. Then you could be looking at. But if you're a reporting person and you you work in title, you work in escrow, you're one of the attorneys doing this. Even us, if we're preparing deeds and these types of things, we're reporting party. We have to do it. And now you know why they're going to take it really serious? Because you're going to get smacked by the government civilly and possibly criminally. If you don't.
So what is the workaround for most of us? Like if he just, hey, I don't want to trigger these things, then take title and or transfer into a land trust, right? Get it into that grantor trust. If you own a property that you want to protect, transfer it underneath an exemption to transfer it for no consideration. Into a trust that you're the grantor of so that you can avoid having to do a bunch of reporting. And that would get around. Also filing your own deed might be a way to get around the reporting parties, do it yourself. And, again, remember what this is. This is a part of a trend that we've been seeing over the last several years. Right? The bigger trend, the US is shutting down anonymity in real estate. And that's because bad actors are laundering money by buying real estate, and they're trying to ferret them out. They're not looking for us guys. They're looking for the bad actors. And so I understand it. I understand why the government's doing it. The days of hiding behind entities and trust are over as far as the government. Right. And so I'm just going to put that again, underline it, at least from the government. You're already reporting this. If it's you as an individual and you own a bunch of LLCs, it's going on your 1040, whether it be via a K-1 that's going on your schedule or just going on page one of your schedule because you own it or you have disregarded LLCs, it's already on your tax return. This is not doing anything differently. And remember, this type of reporting is not a public record. I can't go pull your tax return. I can't go pull this information. So you still have anonymous ownership to the rest of the world. But the Treasury wants to know who are the ultimate beneficiaries. They're doing it to stop the bad actors. So if you're using LLCs and trusts, keep using them for liability protection for tax planning and estate planning. Just know that starting December 1st, 2025, the rules change and those deals come with some reporting obligations. It might not even be. You may be somebody else, but then you know, and the more you know, the better you off, right? So just make sure that you understand that this is coming.
If this video helped you, hit like, subscribe, share it with other people. Hey, share it with your other investors so they know because you don't want to have a bunch of fighting and stuff anyway. Why are you asking? You've never asked for this before. It's because the rule wasn't in place. It's coming in and eventually everybody's going to have to deal with it. And stay stuck to this channel because I'm going to break down the changes, if anything changes. And a lot of times the government, if the Corporate Transparency Act was any lesson for us, it was even after it came in and it was enacted, there was court challenges. There's going to be court challenges here, that change thing, and eventually they changed the reporting requirements and eliminated it for a lot of us. So hopefully we'll see some of that here, because there are some constitutional challenges that the government is going to have to deal with. So I'll keep breaking down the changes so you can protect your assets, grow your wealth and avoid the traps. All right. So stay stuck to this channel. So I'm Toby Mathis and by the way, let me know what you think down in the comments. I usually get some people that are like they're some very strong opinions, but I still want to see them and other people will go in there and, you know, respond to each other, have a conversation down there in the comments because it is interesting. Never had these rules before, and it'll be interesting to see how they're, you know, how they affect you. And if you've heard anything right, please share it. This is an information sharing channel. So if you can go down in those comments and put in what you, what you think or what you've heard, ask questions, I'm sure you will get there and, and get you some response. So until next time, this is Toby Mathis. I'll see you guys later.