Category: Seller Tips

Starting March 1, 2026, if you buy residential real estate with cash using an LLC, trust, or corporation, your personal information must be reported to the federal government. This is the new permanent reality for cash transactions through entities.

Does This Affect You?

The rule applies when ALL THREE conditions are true:

1. Property Type: Single-family homes, condos, townhouses, or 2-4 unit properties

2. Payment Method: All cash, hard money loans, private financing, or cryptocurrency

3. Buyer Identity: LLC, corporation, partnership, or any type of trust

* Quick Test: Buying a $3 million Los Gatos home with cash through your family LLC = YES, the rule applies.

Buying the same home with a mortgage = NO, you’re exempt.

What Must You Disclose?

You must identify every person who owns 25% or more of the entity or controls major decisions.

For each person, you must provide:

– Full legal name

– Date of birth

– Home address (no P.O. boxes)

– Social Security Number

– Driver’s license or passport number

– Citizenship status

– Ownership percentage

*Complex Example: You own 100% of “Smith Holdings LLC,” which owns 100% of “Property Investment LLC” that buys the house. You must disclose yourself as the beneficial owner, even though the house is purchased by the second LLC.

Who Files the Report?

The title company or escrow officer files the report within 30 days of closing. You don’t file it yourself. Your job is simply to provide accurate information when requested.

Penalties Are Serious:

– Civil Penalties: Up to $1,394 per day for late filing. A 30-day delay could cost you over $40,000.

– Criminal Penalties:** Up to $250,000 fine and 5 years in prison for willful violations. This includes intentionally hiding information or structuring transactions to avoid reporting.

*Important: There are no warnings. First-time violations carry full penalties.

What This Means for Your Timeline

Before: 30 days to close a typical transaction

Now: 35-45 days to close

– 5-10 extra days for basic documentation

– 10-15 days for international owners

– 15-20 days for complex multi-entity structures

*Pro Tip: Start gathering documents before making offers. In competitive markets like Palo Alto or Los Gatos, these delays can kill deals.

Your Options

Option 1: Individual Purchase**

Buy in your own name. No reporting required, but you lose all entity benefits.

Option 2: Traditional Financing**

Use a bank mortgage instead of cash. This exempts you from reporting while maintaining some entity benefits.

Option 3: Accept the Reporting**

Keep your LLC or trust and comply with the new requirements. You keep asset protection and tax benefits, but the government knows who you are.

Documents to Prepare

Gather these before you start shopping:

– Government-issued ID for all beneficial owners

– Proof of home address (utility bills or bank statements)

– Entity formation documents

– Organizational charts showing ownership percentages

– Board resolutions authorizing the purchase

Common Questions

Q: Does this apply to my family living trust?**

A: Yes. Even revocable trusts used for estate planning must report if buying with cash.

Q: What if I put 50% down and get a bank loan for 50%?**

A: If you have a traditional bank mortgage, you’re likely exempt regardless of the down payment amount.

Q: Can I avoid this by buying as an individual, then transferring to my LLC later?

A: Technically possible, but this creates tax consequences and title complications. Consult your attorney first.

My Recommendations

For Privacy-Focused Buyers:** Consider using traditional financing instead of cash, or accept that privacy through entities is no longer possible.

For Entity Buyers:** The benefits of LLCs and trusts still outweigh the compliance burden for most situations. Plan accordingly.

For All Buyers:** Factor extra time into your transaction planning. In competitive markets, documentation delays can cost you the property.

For International Buyers:** Expect longer timelines (10-15 extra days) for verification of foreign documents and identities.

Next Steps

1. Review your current entity structure with your attorney

2. Decide whether to keep entities or adjust your strategy

3. Prepare documentation packages for future purchases

4. Build extra time into transaction timelines

5. Work with title companies experienced in FinCEN compliance

Why This Matters

This rule is permanent, nationwide, and actively enforced. FinCEN has shown consistent enforcement across other industries, and penalties are severe from the first violation.

The real estate industry is adapting with new technology and processes. Title companies are building compliance systems, and experienced agents are factoring these requirements into transaction planning.

Bottom Line: Plan ahead, comply properly, and don’t let documentation delays derail your purchase.

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*This article is for informational purposes only and does not constitute legal or tax advice. Consult qualified legal and tax professionals regarding your specific situation.*

A 1031 Exchange is a tax-deferral strategy for real estate investors, allowing them to sell an investment property and reinvest the proceeds into another “like-kind” property—thereby deferring the capital gains taxes that would otherwise be owed after the sale. It is named after Section 1031 of the IRS code and is sometimes called a “like-kind exchange.”

What is a 1031 Exchange?

A 1031 Exchange, named after Section 1031 of the Internal Revenue Code, permits investors to sell a qualified investment or business property and defer paying capital gains taxes, provided the proceeds are used to purchase a similar (“like-kind”) property of equal or greater value. This tax strategy is intended to encourage ongoing investment and applies only to real estate held for productive use in business, trade, or investment—not personal residences or property held primarily for resale.

How it Works

1. Relinquished Property Sale: You sell an investment property (the “relinquished property”). The proceeds from this sale are held by a qualified intermediary (QI), not directly by you.
2. Identification Period: Within 45 calendar days of selling the relinquished property, you must identify potential replacement properties. There are rules regarding how many properties you can identify:
   • 3-Property Rule: Identify up to three properties of any value.
   • 200% Rule: Identify any number of properties, as long as their aggregate fair market value does not exceed 200% of the fair market value of the relinquished property
3. Exchange Period: Within 180 calendar days of selling the relinquished property (or the due date of your tax return for the year in which the relinquished property was sold, whichever is earlier), you must close on one or more of the identified replacement properties.
4. Qualified Intermediary (QI): A QI is a crucial, independent third party who facilitates the exchange. They hold the sale proceeds from the relinquished property and use them to purchase the replacement property, ensuring you never have “constructive receipt” of the funds, which would trigger a taxable event.

California is moving aggressively toward electrification, phasing out natural gas appliances – including water heaters—in both new and existing buildings. Here’s what you need to know about this transition:

The Foreign Investment in Real Property Tax Act (FIRPTA), enacted in 1980, is a U.S. tax law that requires foreign individuals and entities selling U.S. real estate to pay federal income tax on any gain from the sale. Under this law, when a foreign seller transfers ownership of a property in the United States, the buyer must withhold 15% of the total sales price and send it to the IRS at closing. This withholding ensures the federal government can collect applicable taxes that might otherwise go unpaid if the seller departs the country after the transaction.

FIRPTA Withholding Rules for Buyers and Sellers

FIRPTA creates distinct withholding obligations for buyers and sellers when a foreign person sells U.S. real estate. Here’s how the rules work for each party:

Buyers’ FIRPTA Responsibilities

Must determine the seller’s citizenship status. If the seller is a foreign person, the buyer (not the seller) is responsible for withholding.

• Typically withholds 15% of the total sales price at closing and remits it to the IRS within 20 days using IRS Forms 8288 and 8288-A.
• The amount realized includes: cash paid, fair market value of any non-cash property, or loans/assumed liabilities as part of the sale.
• Can rely on a properly completed “non-foreign affidavit” from the seller to avoid withholding.
• Exemptions and reduced rates:
  ◦ No withholding if the sale price is $300,000 or less and the buyer intends to use the property as a residence.
  ◦ Withholding is reduced to 10% if the sale price is $1 million or less and the buyer will reside in the property.
  ◦ May escrow the withheld amount if the seller applies for a withholding certificate (Form 8288-B) from the IRS for a lower or exempt amount.

Sellers’ FIRPTA Responsibilities

• Foreign sellers are subject to the 15% withholding, which is credited against any tax due on the U.S. gain when filing their U.S. tax return.
• May provide a non-foreign affidavit (if applicable) to prove U.S. citizenship or residency and avoid withholding.
• Can apply to the IRS for a withholding certificate to reduce or eliminate the withheld amount if the actual tax owed will be less than the default withholding.

What Both Parties Should Know

• Failure to comply can result in the buyer being liable for the full tax due, interest, and penalties.
• The obligation exists regardless of whether the property is sold at a gain or loss.
• Both buyers and sellers should consult tax professionals for complex situations or when seeking exemptions or reduced rates.

FIRPTA places the full burden of compliance on the buyer to ensure IRS withholding is conducted accurately and on time.