New Real Estate Transfer Reporting Demands Attention to Avoid FinCEN Trouble

FinCEN has new reporting requirements to curb the illicit use of residential real estate. Be aware that certain transfers and transactions warrant increased planning by clients and their advisers. 

The Department of the Treasury’s most recent reporting requirement is designed to increase transparency in the U.S. residential real estate market to combat and deter money laundering. Beginning March 1, 2026, certain defined persons involved in real estate closings and settlements must report information to the Financial Crimes Enforcement Network (FinCEN) about specified transfers. Advisers and their clients should be aware of this new reporting requirement and its penalties to ensure prompt and accurate compliance.

FinCEN’s final rule requires certain “reporting persons” performing specified closing or settlement functions in certain reportable transfers of real estate to report specified information to FinCEN about the transfer.

A transfer is reportable if it meets each of the following criteria:

• The property is residential real property.
• The transfer is “nonfinanced.”
• The property is transferred to a legal entity or trust.
• An exemption does not apply.

The purchase price is irrelevant in determining whether reporting applies. Gifts of property, for example, that otherwise meet the aforementioned criteria will be subject to the reporting requirement.

Residential real property may include single-family homes, townhouses, condominiums, cooperatives, as well as multifamily homes for one to four families. Vacant or unimproved land for which the transferee intends to build residential real property, or even where the property is mixed use, may also be included. Advisers and clients must be aware of the broad definition of residential real property and consult with a legal professional if they are unsure.

The definition of “nonfinanced” is that the transfer does not involve an extension of credit to all transferees that is both secured by the transferred property and extended by a financial institution subject to an Anti-Money Laundering (AML) program and Suspicious Activity Reporting (SAR) obligations. Without an obligation to maintain an AML program and file SARs, a transfer may be reportable. This would be more common with non-bank private lenders, and could be a pitfall for unaware transferors, transferees, and their advisers. One of the key criteria is that at least one of the transferees is a “transferee entity” or a “transferee trust,” which could include a limited liability company, corporation, partnership, or trust (either revocable or irrevocable). If the transferees are both an individual and an entity or trust, the transfer is reportable unless an exemption applies.

If it is determined that a transfer of residential real property to an entity or trust is nonfinanced, one must review whether any exemption from reporting applies. These exemptions are limited and generally apply only when another reporting requirement affects the transfer, such as when a transfer is overseen by bankruptcy, civil, or probate courts, or where there is a qualified intermediary (such as for the purpose of a like-kind exchange under Internal Revenue Code Section 1031). Importantly, a transfer made for no consideration by an individual – either alone or with their spouse – to a trust of which that individual, their spouse, or both of them are the settlor(s) is an exemption from reporting. However, if an individual transfers such a property owned with any other person, the exemption does not apply. In addition, if a trust is treated as a securities reporting issuer, or has a trustee that is a securities reporting issuer, it may not need to be reported. FinCEN has a reference guide for such exemptions that should serve as a guidepost for advisers and their clients.¹

If no exemption applies, advisers and clients should determine who is the “reporting person” with the obligation to file the report. There is only one reporting person for any given reportable transfer. Generally, it follows a reporting cascade, with the obligation falling to the person performing the function that appears highest on the prescribed list:

• The agent signing the closing or settlement statement.
• The agent who prepared the closing or settlement statement.
• The person who files the deed or other instrument transferring the property with the recordation office.
• The person who underwrites the transferee’s title insurance policy for the transferred property.
• The person who disburses, in any form, the greatest amount of funds connected with the transfer.
• The person who evaluates the status of the title.
• The person who prepares the deed or other instrument transferring the property.

If none of the above functions are performed for the reportable transfer, then a report is not required to be filed. Similar to the exemptions identified, FinCEN has published a guide for identifying the appropriate reporting person.²

The reporting person must provide certain information about the transfer, including the identification of the reporting person, the transferee entity or trust, the “beneficial owners” of such entity or trust, any individuals signing on behalf of an entity or trust during the transfer, the transferor, the residential real property being transferred, and the total consideration and other information about any payments made. The definition of a “beneficial owner” of a transferee entity depends upon those owners exercising “substantial control,” directly or indirectly, over such entity, or owning or controlling at least 25% of the ownership interests. The definition as it applies to trusts is more nuanced. According to FinCEN, reporting persons may rely on information provided by another person, “but only if such reporting person does not have knowledge of facts that would call into question the reliability of the information.” The beneficial ownership information, however, must be provided by the transferee or the transferee’s representative, and only if the person providing this information certifies the accuracy of the information to the best of his or her knowledge.

The report must be filed by the later of either the final day of the month following the month in which the reportable transfer occurred or 30 calendar days after the date of closing. While the reporting person is not required to keep the report filed, that person must retain for up to five years any certification for the identification of the beneficial owners of a trust and any designation agreement signed, such as when a person identified in a higher position of the reporting cascade enters into an agreement with a person in a lower position (the “designated reporting person”) for such designating reporting person to file such report.

Negligent violations of this reporting requirement could result in a civil penalty of not more than $1,394 for each violation and an additional penalty of up to $108,489 for a pattern of negligent activity. Willful violations face the potential for a term of imprisonment not more than five years, a criminal fine of not more than $250,000, or both, along with a civil penalty of not more than the greater of the amount involved in the transaction (not to exceed $278,937) or $69,733.

The above penalties, along with FinCEN’s possible outreach to potential reporting persons and publication of violating parties, necessitate that advisers and their clients learn and understand this new rule and its requirements.

Given the new reporting requirement’s nuances, advisers and their clients should carefully consider potential future transfers that might trigger its application and coordinate appropriately. The federal government’s efforts to combat and deter money laundering by increasing transparency of certain transfers and transactions warrant increased awareness and planning by clients and their advisers. 

¹ www.fincen.gov/system/files/2025-12/Exceptions-Fact-Sheet.pdf

² www.fincen.gov/system/files/2025-12/QRG-Am-I-A-Reporting-Person.pdf

Brian M. Balduzzi, JD, LLM (Taxation), CFP, is an attorney with Faegre Drinker Biddle & Reath LLP in Philadelphia and is a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at brian.balduzzi@faegredrinker.com.