What happens if the IRS puts a lien on your house?
You may be in this situation if you have an outstanding tax debt with the IRS that hasn’t been addressed. If you’re worried about the potential for a lien, it’s important to get up to date with all unfiled tax returns to apply for debt relief options or payment plans through the IRS Fresh Start program. If a lien is already in place, it’s time to get serious about taking care of it before you see even deeper long-term financial repercussions.
What Is a Tax Lien on a House?
What happens when a lien is placed on your home? We want you to know that a tax lien will never “sneak up” on you. The IRS will notify you that you owe tax funds through something called a Notice and Demand for Payment. A lien will only be placed on your property if you ignore the notice without paying the full debt on time. If you don’t make an arrangement with the IRS after receiving your notice, the IRS will then file a public document called the Notice of Federal Tax Lien. The purpose of this document is to alert creditors that the federal government has a legal right to your property.
Here’s Why You Don’t Want an IRS Tax Lien on Your Home
An IRS tax lien stifles your ability to utilize your home as a financial asset. It will be difficult to sell or refinance your home until the lien is satisfied. Even filing for bankruptcy won’t clear the lien. What’s more, a lien can hinder your ability to be approved for credit with lenders.
The best option is to stop running from the IRS. In fact, you as a taxpayer have many different options for getting rid of an IRS lien on your house.
How To Get a Lien on Your House Removed
If you need to figure out how to get a lien off your house, you have several choices. The simplest one is to pay your tax bill. Once you pay your full tax debt, the IRS will release your lien within 30 days. You still have other options if you’re not able to pay the full amount today. When the IRS determines that conditions serve both the government and taxpayer, it will actually approve other options for reducing a lien’s impact.
Option 1: Ask for a Discharge of Property
The IRS may allow for a discharge of the lien from a specific property that you own. Taxpayers can use this if they intend to sell or refinance a property. When you get approved for a discharge, you’ll be free to sell or refinance one specific property without the lien attached, even if the lien still applies to other properties and assets.
Option 2: Request Subordination
With subordination, the IRS isn’t technically removing or freezing the lien. However, the IRS is allowing other creditors to move head ahead of the IRS. This could help the taxpayer qualify for a mortgage or loan in cases where the primacy of the IRS lien was preventing that from being approved. Subordination is typically used when taxpayers intend to refinance as a way to use home equity to pay an IRS debt.
Option 2: Request a Withdrawal
IRS lien withdrawal is the most dramatic option. A lien withdrawal formally removes the public Notice of Federal Tax Lien that was placed on your property by the IRS. This signals to other creditors that the IRS is not competing with them for rights to your property. However, an IRS lien withdrawal does not actually remove your liability for the amount of the lien. The lien is still in place, even though your record is not “tarnished” by it publicly for other creditors to see. Keep in mind that under ordinary circumstances, a tax lien will stay on your record for seven years.
Under the 2011 IRS Fresh Start program, the IRS will approve the withdrawal of your Notice of Federal Tax Lien after the lien’s release as long as you’re in compliance with all filings of all individual returns, business returns, and information returns for the past three years. You must also be current on all estimated tax payments and federal tax deposits, as applicable. Taxpayers may also be eligible for lien withdrawal for a Notice of Federal Tax Lien if they have entered into a Direct Debit installment agreement with the IRS. To utilize this option, you must owe $25,000 or less in tax debt. If your current tax debt is above $25,000, it’s possible to pay down the balance to reach $25,000 before making a request. You must also be in full compliance with all other filing requirements.
Final Thoughts on Handling an IRS Tax Lien on Your Home
If you’re in any phase of managing an IRS tax lien on your house, the Tax Group Center team can offer guidance. While preventing a lien by taking advantage of IRS payment options now is the best choice, we can help you take advantage of relief and payment options, even if a lien is already in place. Ready to work with a team of tax lawyers and CPAs with 30 years of experience? Contact us today and we’ll get to work for you!
IRS Resources:
- https://www.irsvideos.gov/Business/IRSLiens/LienSeg1
- https://www.irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien
- https://www.irs.gov/newsroom/what-if-there-is-a-federal-tax-lien-on-my-home
