Relax. You Can Sell Your Home Even When There's an IRS Lien
Do you have an IRS tax lien?
You’re screwed if you have to sell your home, right?
Nope.
You’re absolutely able to sell property that is subject to an IRS lien.
But first, it's important to understand that a tax lien and a tax levy are two very different things.
A tax lien protects the IRS’s position in your property, which holds equity in the event you sell.
Alternately, a levy means the IRS is taking money from you, whether by taking money from your pay check or bank account.
Can the IRS seize your house?
Well, technically, but that’s not happening.
Unless the balance owed is sky high and/or the circumstances are extraordinary, the IRS will not seize a taxpayer’s principal residence.
The IRS doesn’t want to seize real estate because then they have to sell it. They don’t want to do anything that makes their jobs harder.
It’s much easier for them to collect the proceeds of a sale when the taxpayer sells their house.
Taking peoples houses is also a bad look for the IRS.
Surprisingly, the IRS is actually cognizant of how they look and doesn’t like the bad publicity that comes along with putting old ladies out on the street.
But I digress.
Back to the original question:.
Can you sell your house if you have an IRS lien?
Absolutely.
Now, I say you'll be able to sell, but you aren’t going to be able to sell your home and keep the profit without first paying the IRS.
However, if you’re willing to pay the IRS from the profits of your sale, the IRS will happily discharge the lien so that the buyer owns the home free and clear.
A few tips for how to ensure a smooth sale closing:
Submit the application for discharge to the IRS as soon as possible. Don’t wait until the last minute. You want the IRS to have plenty of time to review your application for lien discharge so it doesn't hold up the closing.
Don’t wait for an appraisal to send in the application for discharge. Let the IRS know that the appraisal is scheduled and use the amount calculated by the county property tax records.
Once you agree to sell, allow up to 60 days for closing. I have clients all of the time who tell me, “By the way, we need to close in two weeks, the discharge will be done by then, right?” Nope!It won’t be done that fast! But applying early and requesting a full 60 days should provide enough time to get the lien taken care of before it creates any problems.
The tips above all assume the profits of the sale are not going to pay off your entire tax balance. If the sale will pay the whole thing off, you don't need to go through the rigamarole of submitting an Application for Dischage. You need to get a payoff amount from the IRS and provide it to the title company so they know that when the property sells, the IRS will be paid in full and accordingly, the lien will be lifted.
Lesson of the Day
Don’t freak out if you want to sell your house and there’s an IRS lien.
You’ll have to pay the IRS from the proceeds of the sale, but if you need to move, or even if you just want to move, you’ll be able to.
You may just need the help of a tax professional to get done what needs to be done to calm everyone's nerves.
