Paying Cash for U.S. Real Estate - FinCEN Wants to Know Who!
A Multi-Part Series for Non-U.S. Individuals Interested in U.S. Residential Real Estate Part 1: New Anticipated FinCEN Rules for Cash Purchases of U.S. Real Estate Financial Crimes Enforcement Network (FinCEN) plays a crucial role in combating money laundering and maintaining the integrity of the U.S. financial system. In this segment, we will consider new anticipated FinCEN rules to help non-U.S. individuals and their advisors navigate the U.S. real estate market. Importantly, this is for informational purposes only and not intended to be relied upon as either legal or tax advice. Highlights from the National Association of REALTORS® 2023 Profile of International Transactions in U.S. Residential Real Estate regarding non-U.S. clients who purchased and sold U.S. residential property during the 12-month period of April 2022–March 2023:
$53.3 Billion – Dollar volume of non-U.S. buyer residential purchases during April 2022–March 2023 (2.3% of $2.3 trillion of the dollar volume of existing-home sales)
42% – Non-U.S. buyers who paid all-cash (compared to 26% among all existing-home buyers)
45% – Non-U.S. buyers who purchased in a suburban area
China (13%), Mexico (11%), Canada (10%), India (7%) and Colombia (3%) were the top five countries of origin by number of U.S. existing homes purchased
Florida (23%); California and Texas (12% each); and North Carolina, Arizona and Illinois (4% each) were the top U.S. destinations for non-U.S. buyers
Non-U.S. buyers have long been attracted to the stability and growth opportunity of the U.S. real estate market. Often, non-U.S. buyers purchase U.S. residential real estate in cash (42%) using a legal entity such as an LLC (limited liability company). In 2016, however, FinCEN implemented and has since then expanded its Geographic Targeting Orders (GTOs), which currently targets certain U.S. real estate transactions in 14 geographic locations that are purchased by a legal entity (sometimes, pejoratively called a “shell” company by FinCEN) and not financed by a financial institution that is obligated to maintain an anti-money laundering (AML) program and report suspicious transactions under the Bank Secrecy Act (BSA). According to FinCEN’s website (visited 14 Sep 2023), GTOs “require U.S. title insurance companies to identify the natural persons [aka beneficial owners] behind shell companies used in non-financed [i.e., cash] purchases of [U.S.] residential real estate.” But critics state the GTOs are easy to skirt such as by simply buying property outside of the current targeted areas. Therefore, it is believed that the anticipated changes, which still have not been announced and are now delayed, will expand the scope of reporting requirements to capture a broader range of real estate transactions. Here are some key points for non-U.S. buyers to consider in anticipation of the new FinCEN rules: 1. Lower Thresholds: An anticipated change is the reduction of reporting thresholds. The current GTO applies to transactions above $300,000 in each targeted area, except the Baltimore area, where the threshold is $50,000. The anticipated changes could lower the reporting thresholds, meaning that more transactions would be subject to reporting. 2. Geographic Expansion: The scope of the rules may expand geographically. While the existing rules target 14 major metropolitan areas, the anticipated changes could extend reporting requirements to additional regions, or the entire United States. 3. Inclusion of Additional Entities: The anticipated changes may include a broader range of entities beyond just a corporation, LLC, partnership, or other similar entities. This means that more types of entities involved in real estate transactions, namely trusts, may be subject to reporting requirements. While these anticipated changes are aimed at increasing transparency and preventing financial crime, they may also have implications for the privacy and ease of doing business for non-U.S. individuals interested in owning U.S. real estate. Non-U.S. buyers concerned about privacy or other legitimate reasons should carefully consider the potential impact of these anticipated changes. If you have a non-U.S. client interested in purchasing property in the United States, please feel free to contact me for further assistance. I can help locate the right real estate agent in all major and secondary markets of the United States using my network at Compass.
Amy Solarz-Patel Lic. R.E. Salesperson M: 646.630.3585 email@example.com Additional Resources: For more information about FinCEN’s GTOs: https://www.fincen.gov/news/news-releases/fincen-renews-and-expands-real-estate-geographic-targeting-orders-1 For more news: https://www.reuters.com/world/us/us-set-unveil-long-awaited-crackdown-real-estate-money-laundering-2023-08-10/ Acknowledgment: This multi-part series is being done in collaboration with AURIC PRIVATE CLIENT ADVISORY LLC, which provides U.S. tax advice and return preparation services for non-U.S. persons: https://www.auricllc.com/