The IRS will likely put a tax lien on your home if you are in an unfortunate situation where you have a significant tax balance owed and have payments past due. The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property. A tax lien on your home dramatically impedes your ability to sell the property or take out an additional mortgage.
How long does it take before the IRS considers a lien on my property?
If you are a homeowner and it appears questionable to the IRS that you will be able to pay tax debts of at least $10,000 before the collection statute expires, the IRS likely puts a lien on your home.
Will a lien allow the IRS to take my home?
No, since a lien is not a levy. An only lien secures the IRS’s interest in your property when you don’t pay your tax debt. A levy is where the IRS takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any real or personal property that you own or have an interest in. Although a lien does not give the IRS the right to take your property, having a tax lien is public knowledge and could make it difficult to either sell the property or refinance it.
How can I get rid of the tax lien?
Quick Full Payment of Tax Debt
The first option is to avoid getting a lien by paying the tax debt in full before the lien is enacted. The IRS must give you notice and the opportunity to pay the tax debt before filing a lien. The challenge for the taxpayer is that only a ten-day notice period is required before the lien can be enacted, resulting in the taxpayer having to pay the tax debt in full during this window period.
Selling the property
This is another option, although it may not always be suitable. If you have enough equity in the home to pay off the tax debt, the taxes owed will be sent directly to the IRS, releasing the lien at the point of sale. You can still sell your home if the amount of equity is less than the tax due. The remaining amount will have to be settled differently. Please note that when the IRS issues a lien, it covers current property and future property acquired until the tax debt is fully paid.
Refinancing may be the best option if you don’t want to sell your home but have some home equity to pay the tax debt. Since it is challenging to obtain lending if the house has an IRS lien attached, getting the IRS to subordinate the lien will help. IRS might allow subordination if it agrees that this will allow for payment towards the tax debt. Subordination does not remove the lien but allows other creditors to move ahead of the IRS, making getting a loan or mortgage easier.
The other option may allow withdrawal of your Notice of Federal Tax Lien if you have entered in or converted your regular installment agreement to a Direct Debit installment agreement. General eligibility includes:
You owe $25,000 or less (If you owe more than $25,000, you may pay down the balance to $25,000 before requesting withdrawal of the Notice of Federal Tax Lien)
Your Direct Debit Installment Agreement must fully pay the amount you owe within 60 months or before the Collection Statute expires, whichever is earlier
You are in full compliance with other filing and payment requirements
You have made three consecutive direct debit payments
You can’t have defaulted on your current, or any previous, Direct Debit Installment agreement.