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Tax Smart Real Estate Investors Podcast
370. Two Major Housing Changes Investors Need to Know: Senate Housing Bill + FinCEN Reporting
00:34:30
Two major housing developments just hit real esta…
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Tom
You're now listening to the Tax Smart REI Podcast, the number one tax podcast for real estate investors,
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Nate
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Podcast Host / Outro Speaker
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Tom
Hey, thanks for tuning into this week's episode of the Tax Smart REI podcast. Today we're going to be covering two massive developments that recently hit in a two week window. The Senate passed a bipartisan housing bill 89 to 10 that restricts institutional investors from buying single family homes. And there's another development. It's FinCEN's new residential reporting rule that just went live March 1, targeting every investor buying through an LLC or trust with cash. A quick reminder, we did cover the one big beautiful bill on episode 328. This is a different bill and with new provisions and we'll be diving into all of that in just one minute. You've probably never found a real estate newsletter worth reading, and that's because we hadn't created ours yet. The REI Daily is a newsletter you actually want to read whether you own one property or 100. We created this for you. Each issue delivers crucial tax saving strategies, legislative updates, and as well as real estate market insights, everything you need to stay sharp and ahead of the game. Get the real estate and tax news that actually matters straight to your inbox. Subscribe to the REI Daily newsletter today@therealestatecpa.com subscribe that's it for now and right back into today's episode. All right, and we're back. And Nate, these seem like two major revisions here and you know, excited to break these down here today. I think we're going to be starting here with this Senate housing bill that was the one that was passed 89 to 10 and there was another one, looks like it was passed 390 to 9 and is now headed to the conference. So do we want to first start by breaking down this 21st century road to Housing Act?
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Nate
Yeah, Tom. So I'll talk about first words that politically. Right. So the Senate did just pass this and it was passed by the House originally. However, as always. Right. We were talking about the one big beautiful bill. Whenever the Senate gets a bill that's come from the House, Senate likes to make their changes. They like to make their own adjustments. Right. They like to do all that. And so because of this, they Senate added a couple sections to this. Specifically one of the ones that we're going to talk about today with like the homes are for people, not corporations. And so that was one of the things that was added. Now it's going back to the House. One thing to note is that we'll see what happens when it gets to the House. It's currently not a major priority at this moment. Was priority for the Senate, not the House right now. Right. There's a lot of chaos going around there. But just FYI, where did that politically? We'll see. President Trump is very like he sent a memo out about something this specifically in January. So it is on the political mind. But sometimes they can take months to go through, right? I know that sounds ridiculous, but sometimes it takes months for these things to actually go through for what everybody's wanting to have happen. But the point of this bill is to just basically open up the floodgates for the creation of housing and also to tamp down on large investors and foreign investors too.
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Tom
Absolutely. So let's get into the crux of what this bill is and why listeners should care and be paying attention to what is going on. So I'll kind of break down the bullets that we have here. So it looks like it bans large quote unquote institutional investors, which is any entity controlling more than 350 single family homes post enactment from buying single family homes that are defined as one to two units excluding manufactured homes, however existing portfolios. So people who already have entities that have 350 or more single family homes are grandfathered and there will be no forced plan to having them divest of these portfolios. And the 350 count is aggregated across affiliated entities which can't be split into multiple LLCs to avoid it. So anything you want to comment on there and then a quick question for you follow up there would be what is are they defining as affiliated entities for this purpose?
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Nate
Yeah, Tom, So effectively it's like, it's like indirect or direct control. Right. So they want to basically like hey, where do you move pieces? Right. So BlackRock for example, right. BlackRock doesn't own every buy everything via BlackRock. Right. They have all kinds of LLCs underneath them that they use to buy entities and properties. Right. So effectively what it's saying is that like hey, even though BlackRock is may not be the actual investor and they own more than this, what it's saying is that like hey BlackRock, if you indirectly own this LLC, that or corporation that lives over here doesn't matter. You can't then buy more properties with that. Right. It doesn't allow you to get up to 350 and then get capped and then just do a bunch of LLCs. It's like all that matters is like who has control at the end of the day.
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Tom
Okay, let me put these two scenarios out there because I feel like these two scenarios that come to mind are probably going to be common scenarios. Let's just say, for example, me as an individual investor, let's just say I owned 10 entities with 31 homes each, right? So it's north of 350. Those would all be considered affiliate entities. You know, I own 100%. They're all in different LLCs. But because I'm the common owner, those would be affiliated. Is that a correct way to look at it?
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Nate
Yep, that's correct way to look at it. Yeah. The other way is like, think about it, like do you have management decisions? So maybe you don't direct ownership into the other entity, but you're involved in the management of that. That's when it matters. Right. It can somewhat matter with that. Okay.
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Tom
And then let's just say that I know, you know, this might be something for the major league podcast, but we're here. So everybody who's tuning in, let's just say I'm a syndicator, right? And I raised however many millions of dollars and I've syndicate A with investor group A and this Investor Group owns 150 single family homes. Then I have investor group B with investor group B. And there might be some overlapping investors, of course, but two totally separate entities with different investor pools, despite some overlap. That one owns 150. Now we're at 300. And I have investor group C owns another 150. So now we're at 450. And let's assume this happens after this goes. It's not grandfathered in. Let's say this happens post. Is that considered an affiliated entity?
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Nate
Yeah, that will wind up being an affiliated entity. Right. So it's like, oh, all matters, I guess, the GP or the management, whoever is in control. That's the key point there. So that's a great situation because I think that's what people run into, right. A lot of private equity groups that get up to. Right. They'll get to 130, 150 single family homes and they're. Right. And then the fund gets ready, like cuts off investment, et cetera. Right. They don't have any more acquisitions and they move to the next Fund, but that still would apply in this case. And actually it's making a lot of restrictions for people who are wanting to invest into single family, not like on a large scale. Right. Obviously this like that actually provides some relief or like opportunities for those who are doing on a smaller scale. But in this specific example that we're talking about with the larger private equity, that's where it's going to come and create issues actually.
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Tom
Okay. Because that makes a lot of sense. It doesn't really matter at this point whether you're an individual investor, a small partnership or a large syndicated private equity type group. This applies really across the board, thanks to those affiliated entity rules.
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Nate
Yep.
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Tom
Okay, now from what I see here, we do have some exceptions to these. Of course there's always exceptions. Would you want to break down some of these exceptions?
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Nate
Yeah. So there's I think seven exceptions that typically they are create basically saying, hey, we don't want you doing touching anything with like single family. But if you, then of course with Congress there's always exceptions to the exceptions. Right. So whether you like you call us saying, hey, economic, right. It's either economic or economic for the politicians who are having the lobbyists line their pockets once you decide, basically any new construction, new constructed, renovated or rental conversion homes that are built for sale, right. Not rented, pending sale, but are rented, built for sale, that's fine, you can do those, no problem. You don't have any limitations there. Right. Build to rent programs. Right. So actually if you construct a home and if you construct single family residential homes or communities and then you build it's brand new construction or you purchase it after it's been brand new built, that's fine too. Right. Those two exceptions. And I can kind of see why, like what Congress thinking through there, because they're like, hey, they're buying something brand new, it's not existing structures. Right. Maybe they're selling to themselves, who knows? It kind of makes a little bit of sense. But basically you have to have something that either, hey, you're immediately building them, selling or you are building to rent to others. Right. That's the whole point of your program. Those are like the two really big ones, I think.
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Tom
Okay, okay, am I seeing here? And we might be getting into this, I'd be jumping ahead a little bit, but there's also a 70 year forced disposal under certain accepted purchases for these. So if I'm understanding this correctly, I'm sure some of the listeners have the same exact question here trying to wrap their head around this. So let's say I build a build to rent community, right? And build this nice community. All single family homes built to rent in seven years, I will have to divest of this portfolio. Is that, is that my, my understanding of it?
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Nate
Yeah, you were correct. Like there's still like forced exits. They wanting to occur, they wanting to put more supply back into the market versus it being held forever. Right. Sometimes these corporations and private equity groups can go on forever and ever. So the whole point is to put more into the system. The other thing too, that's also, that was, there's the other exception too is like hey, if you renovate more than 15% of the purchase price, right. Which a lot of people do, right. If you buy like a property that's worth like $100,000 and then you put in $30,000 improvements to get it to modern day standards, right. It could be like an older home or something like that. And so you do that. That's great. And that's an exception here. You can go above your 350, but you have to sell in seven years. That's what's really key here actually is that there's always a forced liquidation point where you have to eventually sell the home back into the market and the renter has first right of refusal.
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Tom
Right.
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Nate
You got to let whoever's renting it know, hey, I'm going to list this thing in 30 days. And so they have an opportunity to make a decision or not if they want to buy the home.
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Tom
This, this makes a lot of sense. I. The entire goal of what I'm seeing with this bill is to make homes available to homeowners rather than investors. And obviously there's some guidelines we have to navigate here. But yeah, selling it into the market after seven years, that makes sense because now you're putting the supply onto the market. So it's aiming to kind of hit that supply issue from there. So yeah, I know. We're here on the tax podcast, Tax Smart rei and with forced divestitures comes exit planning and tax planning issues around 1031, exchange, depreciation, recapture, cost, seg. Timing that people might have to navigate as they kind of face this 70 year hurdle for those that it applies to.
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Nate
Yep, yep, Tom, I totally agree. So here's some of the other exceptions too that exist. So there's going to be some home ownership pathway programs basically like those rent to own structures with the tenant protections involves their credit scores too. Right. Like some of this stuff gets into the really nitty gritty, right. And so I wouldn't necessarily Want to do that today because hey, there's a chance of built in the past, but there's a lot of like, look, the whole boosting ownership programs, right. I already mentioned there were the right of refusal on 38 first to look for the renters. Right. That's another exception that exists for people. And then the debt satisfaction one too. Right. So if you're buying via foreclosure or you're. Or like it's a debt satisfaction note, right? Something of that nature, right. Those also if you buy directly from a servicer, so it's going to be a bank, it's going to be any private money lenders potentially too. That's also going to be something that kicks in that can be accepted when it comes to the total 350 number. Right. So while this 350 number feels grand, definitely feels like a good posture move, there's always a lot of things underneath that create a lot. Again, the fact too is that like you can't just hold on to these properties forever, right. At some point they want you to put it back into the market.
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Tom
So, so with, with the foreclosure acquisitions, right? So say I'm an Investor, I have 350 properties and the bank has a single family house that they had to foreclose on because the, the owner couldn't pay their debts. Right. If I were to buy that from the bank, that's an accepted transaction. Did I hear that?
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Nate
Yep.
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Tom
Okay, that's cool. And now that still has to be sold within seven years in that case.
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Nate
Yeah, it still has to be sold in seven years. It's like I like it kept falling back into in the bill. From my reading of it is that every single time, like it's like, hey, great, you can hold this asset, get some cash flow going, no problem. But you got to put it back in the market eventually or give it to people who are renting it. That's like one of the key aspects of that I saw consistently through this 21st century road to Housing Act.
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Tom
Okay, cool, cool, cool, cool. This, this all makes sense so far. And then another exception that I'm seeing for senior housing. 55 plus.
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Nate
Yes, that's another one. Right. So that's something that we're definitely running into as a country. Right. Congress is identifying things that we are viewing, seeing as a country. Right? Lack of senior housing, lack of homeownership. Right. I know, like the millennial and Gen Z and maybe we're getting some Gen Alphas on this podcast, Tom. But everyone's saying it's impossible to own a home nowadays. It's so hard and so difficult. I totally understand and feel that pain. And so they're trying to find ways to get that in the market. They're also trying to help out seniors who also need housing. Right. So like it's like, it's a weird mix where the young and the old are like getting forced out a little bit. And so they're trying to focus on that, saying, hey, if you're going to develop these senior residents, they're going to give you exceptions effectively. And then the other exception we've actually mentioned, this one already is the fact that anything that's been purchased. So I actually think this is really interesting because you're going to see a lot of weird swapping. I think any purchases from other large institutional investors that already own home pre enactment. So that's something that's like, you're going to see a lot of like let's say horse trading almost right. Where potentially like someone like you have a fund over here, says, hey, I'm going to sell you this home now. You sell me that home. But they're both marked as pre 21st century and they do this weird swap that occurs. I don't know, like, what are your thoughts on that one, Tom?
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Tom
Yeah, I do find that to be pretty interesting. The ability to kind of just sell in between these institutions. Institutional investors, kind of like a game of hot potato. I kind of see where, you know, keeping the market efficient or keeping the market moving within that could make sense. But I, I'm a little surprised that they have that because it's kind of like, you know, these players play in between each other. Like if your goal is to get these properties onto the market, I don't think I would make that exception unless temporarily because you do want to get those properties out onto the market. Hey, real quick, if you've been a long time listener to the show, then you know we give everything away for free from how to use the real estate professional status and the short term rental loophole to save tens of thousands of dollars on taxes to upcoming tax changes. We don't hold anything back. And the only way we would help more real estate investors is if you rate, review and share the show. It just takes 15 seconds to leave a quick rating review or share with a friend who may find this information useful on their real estate journey. That's all for now. We'll dive right back into today's episode.
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Nate
Yeah, it feels weird. It does feel, it feels like a weird carve out for sure. Like I'm trying to figure that another one that's got a carve out were reaps. This one's a little different. So I won't go too in depth in this one. The reason why is because sometimes if you would force a real estate investment trust, right, like you can invest in them. They're basically these large like partnerships that are also corporations that exist that have large real estate portfolios they got carved out. The reason why is if you started forcing them to like start making some sales, they could probably get into what REITs have called or have considered to be a prohibited transaction, which enforce a bunch of excise tax on them. Because REITs don't deal with income tax really, but they would have to deal with excise taxes. And so that would actually force a lot of taxation on them. That may or may not have actually been what the intention was of this bill.
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Tom
That makes sense too, because the REITs, they have their whole entire operating structure. It's a major investment asset class. And I could see that being causing a lot of issues. It makes sense for them to have, you know, some exceptions to allow them to successfully navigate this. Of course we have to look at the penalties, right? Like what happens if you don't do this? Because I'm sure there's a lot of people out there thinking, oh, effort. If the penalties are low enough, I'll just keep buying my properties. Maybe they'll just eat, you know, let's just impact their returns. But it looks like penalties up to $1,000,000 or 3x the purchase price per violation, whichever is greater, if I read that correctly.
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Nate
Yeah.
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Tom
So basically If I have 351 homes and this is after, of course, this is enacted, I could face a penalty of up to a million dollars or say the home was 500,000, 1.5 million. Is that correct?
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Nate
Yeah, it is correct. It's really weird, but it's totally possible to happen. Okay.
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Tom
And then I'm seeing here we have some, some additional ones, the QOZ program. So the opportunity Zone program gets a permanent extension and the bill gives the HUD priority waiting for these areas. What does that look like?
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Nate
Yeah, so, yes, so effectively like the, like the, the house. So housing department might wind up looking more at like Oz tracks and figuring and thinking about giving more grants in that. In those areas. Right. They might get some more housing grants. I know I've worked with a bunch of people in the past who are looking at building, developing site like woman shelters or things of that nature in these QAZ areas. Right. It's like, so basically I like this because it kind of, it kind of like fits with the point of this bill and also fits with the point of the qualified opportunity zone is to get more investment to these areas. And so you get someone who wants to defer a capital gain. Also they want to get, eventually they'd like to avoid tax on the appreciation of any properties they use for investment. So they invest into an area that needs a woman's shelter or something of that nature. And they can also look at developing a strip mall at the same time. And so because of that, HUD is going to likely, based on this, prioritize giving these types of grants to those areas. Right. It's further incentivized Qualified Opportunity zones. And so I think it's just a really good situation. Right. So it's really, really going to be helpful, I think in my opinion. I, look, I'm a big QC guy and I think it's a really great program. So it's just going to continue increasing.
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Tom
That in my opinion makes a lot of sense. And this is not fully finalized yet. Their final provision is, could change. But this is kind of what it looks like as of now and it has at this point passed both the House and the Senate and it's just going back for them to finalize it. So I, we'll probably end up doing a future episode on this once all the dust settles. But I mean this is a pretty big, is a pretty big adjustment for a lot of investors out there who are acquiring a lot of single family rentals. And before we get into the FinCEN part of this, which is another bill which more on compliance related things, I just kind of wanted to stay out there that I kind of understand why they're doing this. Right. They're trying to fix the supply issue. Like there's a lot of demand for housing from millennials, Gen Z, the next generation coming up and there's not enough supply. And it looks like they're trying to prevent all these homes that could be going to homeowners the end someone who's actually going to live in these homes as their residents from being gobbled up by large investors and institutional investors. But I don't know if this fully addresses the equation because from the research that I have and I have not had the opportunity for everybody who's tuning in here to fully, fully verify this information. But from what I understand, owner occupied represents 82.6% of the housing stock. Mom and pop landlords who own under 10 homes 14.4%. So we're looking at the lion's share right now owned by individuals and small investors. And this is clearly targeting large investors. Meanwhile, small and mid sized investors with ten to a thousand homes equals roughly 2.45% of the home ownership. And then institutional investors with a thousand homes or more represents around 0.55%. So about a half a percent, a little north of a half percent. So I understand what they're doing and maybe they're trying to prevent this from becoming a bigger trend, which completely makes sense. But I think we also have to look at how do you address the real supply side, the fact that there's just not enough supply. You need to add more housing.
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Nate
Right.
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Tom
In order for there to be houses to buy, there needs to be houses to buy. In order for people to buy houses, they need to have the house to in the first place. So I understand there's economic issues, right? Like the cost of labor, the cost of materials, the availability of land, local and state zoning regulations that could probably be eased up in some areas, of course, to make it easier for builders to build. But there are some tax things I think they could do to further incentivize. You know, one thing that comes to mind, and this is kind of being solved for, for the build to rent communities, if you think about it, is that developers or builders are subject to ordinary income tax rates when they build and sell homes. If I built a home right now and sold it to you, for example, I'm going to face ordinary income tax rates which are up to 37%. Self Employment Tax, state, local taxes, all that. Meanwhile, long term capital gains rates are from 15 up to 20%, which is obviously much more favorable. And with the build to rent communities, you're kind of getting that right. You're building this community to rent. You get to rent it for seven years, you're going to have long term capital gains rates when you'll debit, typically sell.
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Nate
Right.
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Tom
So that solves that problem. But it'd be interesting to see if they just did just for builders, if they just gave them the capital gains rates.
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Nate
Right.
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Tom
That's just one thing that comes to mind. I don't know how that impacts the budget. And the inflow is that's. I'm just looking at it from a purely incentive perspective. Right. If you dropped it down, if builders built homes through a certain code and certain criteria, if they just gave them more capital gains gain, if they just gave them capital gains treatment, to me that seems like an easy win. To further incentivize it, there's other stuff they could do, tax credits, things like that. But what, what are your thoughts there?
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Nate
Yeah, I think, I think capital gains would absolutely help. The thing that comes down to is like what is investment like? I guess kind of like comes down to is like what makes this them different? Is a question. What makes them different from people who like you who like are working like day to day in wages. Right. And so like so sure we would heavily. That would be a heavy incentive to those. Right. And so while the workers are people who are working on the homes are still taxing ordinary income. But the builders overall their projects tax capital gains. Right. It's always a how should we tax certain of work question. I think one thing. So actually like it's interesting you bring this up. Literally last Friday, Senator from Delaware introduced a bill basically saying that you could in the first year that you start with like you basically get a property ready to go in service that you instead of like flipping it, Right. You would immediately get up to $100,000 of depreciation. Right. And of the 27 and a half or 39 year portion. Right. So if you basically built a home, you'd get a special $150,000 depreciation benefit right out of your 27 and a half year bucket. And then you can also do a cost seg, pull some more out of the bucket too. So that's another interesting way to allow people who allow builders who might not get that depreciation back fast enough to get it accelerated. There's a lot of creative ideas we can think about and I think we should consider them. Absolutely. It's just figuring out like which one makes the most sense.
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Tom
Yeah, yeah, yeah. I think, I think high level we're on the same page where like there are things that can be done in the tax code to further, further incentivize building. What that actually looks like, you know, that's up for, you know, you could brainstorm that any number of ways. But the point is I know that when there are tax incentives around this type of stuff, we see people take action. So whether it's 100, getting 150k of depreciation right off the bat from the, you know, the, the actual building itself or it's capital gains or tax credits or what have you, there's all these different mechanisms. I'm just saying that this aims to protect the current supply. Right. But we need to look at how do we expand the existing supply no matter who owns it. Right. That's something that needs to be focused on and obviously, like I said, there's economic issues related to pricing and all of that, but from a tax perspective there are things. But we could all pine on that, maybe deeper at another time. But shall we move into the FinCEN?
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Nate
Yeah, let's move into the FinCEN. Let's move into that. So for anyone who's not aware, FinCEN is basically the foreign entity that kind of like looks through financial crimes, right? And like it's trying to protect the United States as a whole and track down people, bad actors, right, who are moving or transferring money to the system and are trying to do it in illegal ways and do it for illegal things. Right. Specifically, FinCEN will deal with money laundering, drug trafficking, right. Sex trafficking. They're trying to pick up and spot like all the identifying features of bribery. Anything like that. Like is a incorrect transaction, right? That is flare up and say, hey, we should explore this and investigate this. And for real estate investors specifically, on March 1, 2026, Vincent released kind of a new rule. It's actually a little similar to the Corporate Transparency Act. I know, I don't know if you guys remember that. I know Tom and I steered into our brains at this point in time, but the Corporate Transparency act died a year ago. It's technically dead. Maybe coming back, I will say that it's like, it's kind of a, like what is it, Schrodinger's cat? Right. This is the Corporate Transparency Act. It's kind of dead, still somewhat alive, all at the same time. Just going through a lot of court proceedings, so who knows what will become of it. But basically this provision kind of acts a little like that. Tom, what are your thoughts on this and can you help explain it a little bit?
- [23:47]
Tom
Yeah, absolutely. So what's happening is for everybody tuning in, there's going to be even more compliance that has to be done when you buy homes. So let's break down what this applies to. Right, so residential real property that is being transferred. So that's one to four units, condos, co ops, vacant land or vacant land intended for one to four unit construction. Any buyer that is an entity or a trust, not individual. So it's anybody buying in LLCs, for example, and then transactions that is non finance, quote unquote, which is being bought in cash, seller finance or via private or non bank lender transactions or no other exemption applies. So those are, those are people who are going to be impacted, these transactions. But now what's going to have to be reported, there's going to be a beneficial ownership report for Anybody owning or controlling more than 25%, which is include personal ID info, purchase price, payment method and source of funds for trusts. This will be trustees, beneficiaries and grantors. So what this is saying to me from reading this as that FinCEN wants to see a record of who's buying these residential homes partially probably to enforce what we just talked about, right? Again, getting the housing supply into the hands of individual buyers and not investment companies or investors. But also I have to imagine, just knowing what I know here, living in Miami, that this is probably also to prevent foreign buyers from coming in and buying the housing stock and then renting it back.
- [25:13]
Nate
Right.
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Tom
So where you have people from outside of the country owning the house that you're living in and paying Right, as I imagine it also has to be targeting as well. One more thing I'll say on this or two more things, is that you, as the actual buyer or the investor or the owner of these properties, doesn't seem like you're going to be the one having to file these reports. But the title company will, or the closing attorney, but you will have to provide some information. So there'll be new documentation requests at closing, more information that you will have to provide either the closing attorney or the title companies. And so that's what's going to happen. They're going to be the ones having to file it, but you're going to have to give more information. And what I'm seeing here is that even trusts the degree of anonymous protection here from doing all these things. But in reality, you're going to have to be reporting this now to FinCEN, and you're not going to be as anonymous as you once were, perhaps. So the big takeaway here, Nate, and correct me if I'm missing anything here, if you're a listener right here and you're buying through an LLC with cash or private money, so you're buying cash, you're going to the closing table and just paying it all cash. Or you're getting a private note, say, I lent you money, I'm not a bank, but I lent you money, hard money, private money, whatever, then you're going to be subject to these reporting requirements. And that's just something that you're going to have to deal with. Land trust won't help you either.
- [26:23]
Nate
Yeah, you're totally right, Tom. Like, basically, if you're not going through a bank and the why. So people go, why? If I'm just going through a bank, credit union, whatever, why they do this? These banks and credit unions have These types of protections like set up, right. They are created to spot suspicious activity.
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Tom
Right.
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Nate
And that's like the whole point of this is I guess you find suspicious activity money laundering. Right. Because Vincent reported previously that over 40% of these non finance transfers have been considered high risk potentially. Right. And then hey, we don't have information and we need to know more about what's going on here to basically make sure that there's like two legitimate transfers. So anyone doing seller finance carries private money lending is going to have to go start going through this unfortunately. And it's like look, I was like talking to someone the other day who's doing an investment and they're just trying to do what we call right 721transaction Tom. Right. It's easy peasy. You put someone wants property, the other person gets partnership, really gets partnership equity. Cool. It's no problem. The question becomes now does this trigger a fence and report? And I don't know as of right now I need to do some more research into it. But it's like you know, something that used to felt really easy to felt title but now it's like additional report that has to get done too. On top of that, more paperwork. It's just more and more paperwork that's happening for real estate investors now. Can it ever stop?
- [27:36]
Tom
Yeah, I mean no one loves his extra reporting. Nobody does. It's always rough. But this one's already in play right now as of March 1, just to be clear for everybody. So you know, this all makes sense and I kind of see what they're looking to do with these two bills or these two provisions. I see what they're looking to do again get the housing supply into the hands of the actual people who are
- [27:55]
Nate
going to be living in it.
- [27:56]
Tom
So maybe before I know we're going to do like a little summary and wrap up here of it. But in a nutshell what I'm hearing is with the Senate housing bill, right. The the 21st century road to Housing Act. If you own more than 350 homes and your grandfathered in, if you already own more than 350 homes, if you own more than 350 homes, you are subject to this, which means you have to sell within seven years, if I'm understanding this correctly or face penalties of up to $1 million or three times the purchase price, whichever is greater if you don't take measures to do this, which means you have to have more tax planning comes into play. But also there are some exceptions to this. Build to rent communities Renovate to rent communities and some of these other exceptions there to protect you. And then FinCEN, the FinCEN, which is already in play. So that's being what I just mentioned, that's being finalized right now by, by Congress. But FinCEN, this, these additional reporting requirements which are handled by the title company or the closing attorney, these are in play as of right now. And this is all aimed, again, I said this like seven times, so it's not a broken record. And getting this housing supply here in America into the hands of people are going to be using these homes as primary residences.
- [29:03]
Nate
Yep. That is the target of Congress right now is to get the homes back into people's hands who want to use them to live. Not just that's like an investment or like get them out of private equity's hands is a better way to say that.
- [29:14]
Tom
Yeah, that makes a lot of sense. So let's break down before we wrap up this episode here today. What should listeners be doing right now?
- [29:21]
Nate
So right now just keep an ear to the news, right? That's more what it is. I know it's like the worst thing the world advise anybody, but it's something important is like just like keep your ear in the news of what's happening and also know, hey, when you close, next time you close on a property, do a title transfer, et cetera, right. Anything like that, you're going to have extra reporting. That's going to happen. So just be prepared for that. Be prepared to give extra to the closing agents, to the settlement, to the title companies. They're going to want this information. So just more, more in fact, just be ready. Have good records, right? Like I know, like Tom and I talk about this 24 7. Have good records. Document what you're doing and you're going to be okay ultimately. But just make sure that you do all that like you're aware and keep track of those things.
- [30:01]
Tom
Okay, Here's a quick bulleted action checklist that you'll be mindful of. You're going to want to review your entity structure with your CPA and your attorney to see how this might apply to you.
- [30:11]
Nate
Right?
- [30:12]
Tom
We review our client's entity structure upon getting started with us during our advisory planning process. And then also we check in on it as time goes on the through ongoing support. But you're going to want to take a look at that entity structure, make sure you're aware of any risk you might have or to what extent you might be exposed to these new regulations. You're also going to have your docs ready your beneficial ownership information and docs ready for your next closing. As Nate said, you want to review the bill and if you are scaling beyond 350 homes or close to it, start thinking about alternative acquisition and investment strategies so you don't run afoul. Now what's interesting as we say that before we leave, final word here is does not seem to be impacting multifamily apartment complexes that have say five or more units. This is targeted more towards the single family residential homes that people typically buy to live in themselves. So maybe if you're getting close to 350 homes, right. Or more, maybe you start thinking about should I get into multifamily, Right. Or maybe you should pivot to build the rent, right. And just know that you have a seven year Runway on that. I guess there's multiple ways you consider, but start thinking about that now because this has been passed. It's just what the final details look like are still what's going to be needed to be ironed out. So two things you could do, right? If you don't already have a tax advisor or tax strategist that's helping you navigate this area, go ahead and click the link in the description to this video or to this podcast episode. Schedule a discovery call with our team. We'd love to learn more about your situation and how we can help you navigate this situation as well as all the other strategies and tax saving opportunities that are available to you. And also, if you do want to stay up to date on this bill, go ahead and subscribe to the RAI Daily, which is our newsletter, for updates as this bill does move through Congress. And also of course, do stay tuned here on the Tax Smart REI podcast, as I'm sure me and Nate will be doing another episode on this in the future once this bill is finalized. But this is just things to be mindful of as this, this is, you know, this is, this is here.
- [32:08]
Nate
So yep, yep. Yeah, just keep like this. Not, not a tax episode today. Sorry guys. But when we get back to also want to drop a note right now in the show notes, we're going to start doing Q and A, like live Q and A sessions. And if you guys want to ask us questions, any questions, click that link. Drop your question in. It'll be some box for you to check out. And Phil, go on there, drop that in. And then Tom and I will do a live Q and A session for everybody at some point. Right? Just keep getting those. Once we get enough questions. Well then do an episode for Q&A for for all you guys. I'm sure we'll have plenty, but just want to make that reminder that it's down there for you all.
- [32:39]
Tom
Cool. So we're going to drop that into the show notes for everybody who wants to check out those links. Thanks again for tuning in. Happy investing out there for everybody. Hopefully you're going to be able to navigate the situation just fine. Also, if you do have any questions about this, drop them in that box. Drop in the box. Answer here on a future episode. So that's it for today. Thanks for tuning into this week's episode of the Taxpayer Podcast and we'll catch you on next week's episode. The TechSmart Real Estate Investors Podcast is for general information purposes only and is not intended to provide and should not be relied upon for tax, legal or accounting advice. Information on the podcast may not constitute the most up to date legal or other information. No reader, user or listener of this podcast should act or refrain from acting on the basis of the information on this podcast without first seeking legal and tax advice from counsel in the relevant jurisdiction. Use of an access to this podcast or any of the links or or resources contained or mentioned within the podcast show or show Notes. Do not create a relationship between the reader, user or listener of the podcast and the host, contributors or guests. Any mention of third party vendors, products or services does not constitute an endorsement or recommendation. You should conduct your own due diligence before engaging any vendor. For more information, reference the show notes or description of this episode.
- [33:48]
Podcast Host / Outro Speaker
Thanks for listening to today's show. If you enjoyed the show, please find us on itunes and leave us a review. You can also email us at at. Contact therealestatecpa.com with any feedback or topic suggestions. We are always taking on new clients and with the new tax laws in play, you really don't want to navigate this alone. Let us help you save money on taxes with your accounting and CFO needs to become a client. Navigate to our client page@therealestatecpa.com and fill out a web form with as much detail about your your situation as possible. Thanks so much for listening. Have a great rest of your week.