Log In   ·   Become A Member

Will The Treasury Departmentís Investigation Of Luxury Homes Purchased With Cash By An LLC Draw Attention To The Hamptons?

John A. Viteritti

4 Two Trees Lane in Bridgehampton was purchased by an LLC last year. (Photo: twotreesestates.com)

This month, the Treasury Department announced that it will begin investigating cash purchases of real estate by LLC's in Manhattan over $3 million, and Miami-Dade County in Florida over $1 million. An article that appeared in the January 13th issue of The New York Times stated: "It is the first time the federal government has required real estate companies to disclose names behind cash transactions, and is likely to send shudders through the real estate industry." The article quoted a top Treasury official, Jennifer Shasky Calvery, who stated, "We are concerned about the possibility that dirty money is being put into luxury real estate." Depending upon Treasury's findings in the two target areas, the department could develop reporting requirements across the country.

The use of LLC's as a business form is common across the country. In 1977, Wyoming became the first state to enact LLC legislation. Florida followed suit in 1982. In 1988, the IRS issued a ruling that an LLC in Wyoming would be treated as a partnership for tax purposes. Subsequently, nearly every state in the U.S. enacted statutes recognizing LLC's as a legitimate business form. Basically, an LLC combines the benefits of a partnership with the protection of a corporation: Its income is taxed once, and it provides protection from personal liability. Obviously there are legitimate reasons for doing business as an LLC, including purchasing a luxury home.

Using data provided by Judi A. Desiderio, Chief Executive Officer of Town & Country Real Estate, the 4th quarter of 2015 showed three villages in the Hamptons with home sales in excess of $3 million, the price at which the Treasury is investigating cash purchases by LLC's in Manhattan. East Hampton Village had 13 purchases at a median price of $3.995 million, Bridgehampton, which includes Water Mill and Sagaponack, had 55 purchases at a median price of $3.950 million. Southampton and Amagansett, while close, were under the $3 million price. "Most of these purchases were LLC's," noted Desiderio.

I posed the following questions to Christopher D. Kelley, Senior Partner of the law firm, Twomey, Latham, Shea, Kelley, Dubin & Quataro. What percentage of your real estate transactions are all-cash LLC's, and what is the most common reason for it? "I would say that 60 to 70 percent of my transactions involve all-cash buyers through LLC's," he answered. "Many of the buyers are celebrities. They want to protect their privacy. Since all sales are a matter of public record, they don't want everybody to know how much they paid and the location of the property. Only about 20 percent are financed by a mortgage, and these are the lower priced properties." I also inquired, since a benefit of an LLC has to do with taxes on income, do these properties have to be income producing or could primary and secondary homes also qualify? "The properties do not have to be income producing, and yes, primary and vacation homes may also be purchased by an LLC, and 1031 Exchanges may also be conducted through LLC's," he said. (Author's Note: 1031 is a Section of the Tax Code that allows for the deferment of taxes on a transfer of like-kind investment properties that would otherwise be due.)

To get the perspective of a real estate agent who has a history of dealing in luxury sales in the Hamptons, I spoke to Paul Brennan, Associate Broker with Douglass Elliman. I asked him when looking at the market over $3 million, how many are cash buyers as LLC's? "I would say the majority are cash buyers through LLC's," he responded. "They may finance the purchase through other assets, but not through a mortgage. So there are no mortgage contingencies in the purchase." And why would they want to purchase through an LLC? Like Christopher, his answer was: "They want to maintain their privacy, although the name of the LLC is often the street address."

The Treasury's investigation is especially focusing on title insurance companies. One that I spoke to declined comment.

Buying real estate through an LLC is perfectly legitimate. But the Department of the Treasury and the Federal Bureau of Investigation are determined to continue and broaden their investigations. Even assuming no wrong-doing, it could require those engaged in real estate to go through extra efforts to satisfy the investigators.

"I'm sure everyone will be watching closely any laws coming down regarding real estate closings to LLC's on the high end," added Desiderio.


John is a St. John's University graduate, licensed Real Estate broker, lecturer, teaches real estate license classes at LIU, NYU, and Cook Maran Real Estate School, and is a well-respected consultant to the real estate industry. www.johnaviteritti.com




Related Articles:

Be the first to comment on this article. (Just fill out the form below)
 

Submit Your Comment

Please note, you are not currently logged in. Your comment will be submitted as a guest.
To submit your comment as a member, please click here.
Your Name:
Location:*
Comments:*
* Comments will be reviewed and posted in a timely fashion
* All fields are required
Question:*
What color is a banana?
(For spam prevention, thanks)
 
í
 
 
http://www.hamptons.com/gallery/ads/2003.gif
http://www.hamptons.com/gallery/ads/1824.gif
http://www.hamptons.com/gallery/ads/1979.gif
Gary R. DePersia, Corcoran Real Estate
With over $2 billion in transactions, Gary DePersia is consistently ranked among the top producers in the Hamptons. A year-on-year member of The Corcoran Group Presidentís Council, he has qualified as a national list maker since 2007. In the 2016 REAL Trends & The Wall Street Journal list of Americaís top real estate professionals, he was designated #22 nationally and #5 in the Hamptons by volume with nearly $200 million of transactions for the past year.

East End Tick Control
The East End's only New York State licensed dedicated tick and mosquito control specialists!

Bridgehampton National Bank
For over 100 years Bridgehampton National Bank has been the East End's hometown bank. Many success stories...one bank, BNB!

Advertise on Hamptons.com - Have your business be seen by over 2 million viewers including NEW searches
Hamptons.com- Our exclusive online magazine has 2.6 million Page Views YTD for 2015. Contact us to join our elite group of clients that benefit from having a presence on the Hamptons award winning publication www.Hamptons.com

Hamptons Carpet One Floor & Home
We pay less,and so do you.With over 1,000 stores in our buying group, we can get the lowest prices from the best flooring manufacturers ó and pass the savings on to you.Visit our other locations: Hamptons Carpet One Floor & Home, 675 North Sea Road,Southampton, NY 11968

Southampton Masonry-Visiting the Southampton or the Wainscott locations is an exciting experience.
Southampton Masonry has been serving Long Island's masonry and tile needs since 1975. Delivering quality products from Manhattan to Montauk for over three decades. The company's continued success is due primarily to their number one priority: customer satisfaction, with a promise of prompt and courteous service from the professional, knowledgeable staff. Southampton Masonry has the largest inventory on the east end. As direct importers they can offer a large variety of the finest quality products at the most competitive pricing for both your interior and exterior projects.

Despatch of Southampton
Despatch of Southampton has been moving homes locally on the East End for decades. We operate a well-maintained fleet of vehicles that can accommodate any size move. On a day to day basis we service moves from and to New York City.

RJD Gallery specializes in contemporary art with a focus on Magical, Figurative Realism, Narrative Portraiture and Urban Landscape.
We exhibit representational artists from around the world, who produce fine art of exceptional quality that challenge collectors to contemplate concepts about the artist, themselves, and our human experience. Utilizing timeless techniques in creating their drawings, paintings and sculptures, our artists have developed unique, signature styles that present a current vision of our world.

Hampton Luxury Liner
Hampton Luxury Liner was started in 2000 as a more luxurious way to travel from NYC to the Hamptons and back. The clientele quickly grew and over the years Hampton Luxury liner became the preferred method of transportation to the Hamptons and NYC for many living in NYC and the Hamptons that wanted a comfortable and affordable way to travel back and forth. In 2009, HLL was taken over by Classic Coach and things with the liner didnít change to much for years and the owner there changed the buses to Prevost as opposed to Mercedes Setra Top Class Coaches that have always been a signature of the liner. Please call (631) 537-5800 to reserve a charter or email us at Hampton Luxury Liner. The Only Way to Ride!