FinCEN Reporting: A Midstream Check-In, 1031 Implications and Breaking News That May Change Reporting 

by Maura Snabes, Esq., CES, NTP

FinCEN has now been effective almost one month—how has it affected you and your 1031 Exchange closings?

As you know, as of March 1, 2026, FinCEN reporting is mandated in a transaction in which:

• • It is residential property, including vacant land on which the buyer intends to build or mixed-use property in which a part of the use is residential; AND
  • The buyer is purchasing with cash or financed by a lender that is not subject to AML program requirements or SAR reporting obligations; AND
  • The buyer is an entity or trust

If the buyer of a property intends to use a 1-4 family property for commercial purposes, in order to have it as Qualifying Property for purposes of a 1031 Exchange, the transaction must still be reported if the buyer is an entity or trust. There is no exemption for intended commercial use--if the property fits within the definition of residential property, the transaction is reportable.

Even the acquisition of an apartment building can be a reportable transaction if the building is designed primarily for occupancy by more than four families. If designed for more than four families, it does not meet the residential real property definition. Similarly, if an entire condominium building is acquired and it was designed principally for occupancy by more than four families, it does not meet the definition of residential real property.

If vacant land is acquired and the buyer intends to put a residential development on it over the next several years, that qualifies for reporting, as there is an intent to build. Farmland, no matter the acreage, on which there is a 1-4 family structure also qualifies for reporting under FinCEN.

What about conveyances to a QI in connection with a 1031 Exchange (think reverse or improvement exchange)?

Yes it is exempt, but the exemption only applies for the transfer to the 1031 Qualified Intermediary where the 1031 Qualified Intermediary takes title to the real property. If the transaction from the 1031 Qualified Intermediary is to an entity or trust, it may be reportable. 31 C.F.R. § 1031.320(b)(2)(vii).

FinCEN’s discussion on this states: "Finally, the final rule adopts an exception, at 31 CFR §1031.320(b)(2)(vii), for transfers made to qualified intermediaries for purposes of effecting 1031 Exchanges. Such exchanges are commonly conducted to defer the realization of gain or loss, and, thus, the payment of any related taxes, for Federal income tax purposes. This exception is limited to transfers made to the qualified intermediary; transfers from a qualified intermediary to the person conducting the exchange (the exchanger) remain potentially reportable if the exchanger is a legal entity or trust." 89 F.R. 70268-9.

This is good news from a QI's viewpoint and one less reporting that a closing agent will need to do when an EAT/AT is involved in the transaction. However, QIs must be aware of the reporting requirement when the EAT/AT transfers the property back to an entity or trust taxpayer. There are severe civil and possible criminal penalties for failure to file/report. A reporting person may designate a different reporting person (listed in the reporting person cascade) to file the form and get the clearance, so long as a designation agreement is signed and in place for each transaction in which reporting applies. 

Breaking news! A federal judge in Texas has vacated the Financial Crimes Enforcement Network’s (FinCEN) nationwide anti-money laundering rule requiring title insurance companies to report details of millions of residential real estate transactions. U.S. District Judge Kernodle of the Eastern District of Texas ruled that FinCEN exceeded its statutory authority with the rule, mandating reporting for any non-financed residential real estate transfer where ownership was held by an entity or trust — with no geographic or price threshold. This decision vacates the rule entirely, restoring the status quo that existed before the regulation took effect.

Will this lead to more courts moving to vacate the rule? Stay tuned!

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