Buying a house is a significant milestone in anyone’s life. It’s the culmination of dreams, aspirations and years of hard work. However the journey towards homeownership can be riddled with unexpected hurdles, one of which is an IRS lien on your property.
An IRS lien is a legal claim the government places on your assets, including your home, when you fail to pay your tax debt This lien acts as a security measure, ensuring the government gets its due before you can sell or refinance your property While the prospect of an IRS lien might seem daunting, it doesn’t necessarily mean your dream of owning a house is shattered.
Understanding IRS Liens and Their Impact on Homeownership
What is an IRS Lien?
An IRS lien is a public document filed by the Internal Revenue Service (IRS) to alert creditors that the government has a legal claim to your property. This lien arises when you:
- Neglect or fail to pay your tax debt.
- The IRS assesses your liability and sends you a bill outlining the amount owed.
- You fail to pay the debt in full and on time.
A Notice of Federal Tax Lien is filed by the IRS to alert prospective lenders and buyers that the government is interested in your property financially.
Impact of an IRS Lien on Homeownership
An IRS lien can significantly impact your ability to buy a house. Here’s how:
- Selling your house: You cannot sell your house without first satisfying the IRS lien. This means paying off your tax debt or making arrangements with the IRS to remove the lien.
- Refinancing your mortgage: Lenders are often hesitant to provide mortgages on properties with IRS liens. This is because the lien gives the government priority over the lender in claiming the proceeds from the sale of the property.
- Credit score: An IRS lien can negatively impact your credit score, making it difficult to qualify for a mortgage or other forms of financing.
Options for Buying a House with an IRS Lien
While an IRS lien can complicate the home buying process, it doesn’t make it impossible. Here are some options you can explore:
1. Pay off the tax debt: The simplest way to resolve this issue is to settle your tax debt in full. By doing this, the lien will be lifted from your property, enabling you to move through with the purchase hassle-free.
2. Negotiate a payment plan with the IRS: If you cannot afford to pay off the entire debt at once, you can negotiate a payment plan with the IRS. This will allow you to make regular payments towards your debt while still pursuing your homeownership goals.
3. Obtain a discharge of the lien: You might be able to get a discharge of the lien under specific conditions. This implies that even if you haven’t paid off the whole debt, the IRS will still remove the lien from your property.
4. Subordinate the lien: You may ask the IRS to place the lien beneath the mortgage held by the lender. This implies that in the case of a default, the lender will be entitled to the proceeds from the sale of the property before the government.
5. Sell the house and buy a new one: If none of the above options are feasible, you may consider selling your current house and using the proceeds to buy a new one without an IRS lien.
Additional Resources and Considerations
Resources:
- IRS website: The IRS website provides comprehensive information on IRS liens, including how to get rid of them and how they affect your ability to buy a house.
- Taxpayer Advocate Service: The Taxpayer Advocate Service is an independent organization within the IRS that can help you resolve tax issues, including those related to liens.
- Tax attorney: A tax attorney can provide legal advice and guidance on how to deal with an IRS lien.
Considerations:
- Complexity of the process: Dealing with an IRS lien can be a complex process. It’s essential to understand your options and seek professional guidance if needed.
- Time constraints: Resolving an IRS lien can take time. It’s crucial to factor this into your home buying timeline.
- Financial implications: Depending on the option you choose, there may be financial implications, such as interest charges or penalties.
While an IRS lien can present challenges, it doesn’t have to derail your dream of owning a house. By understanding your options and taking proactive steps, you can navigate this hurdle and achieve your homeownership goals. Remember, seeking professional guidance from a tax attorney or the Taxpayer Advocate Service can provide valuable support throughout the process.
Tips for Buying a House With Back Taxes Owed
The following advice can help you improve your chances of success if you owe back taxes and are thinking about purchasing a home:
Is It Possible to Get an FHA Loan With Back Taxes Owed?
The Federal Housing Administration (FHA), part of the U. S. Department of Housing and Urban Development, provides mortgage insurance on loans made by FHA-approved lenders.
Because of these loans’ low down payment requirements and more accommodating credit score requirements, they are popular among first-time homebuyers. But what happens if you owe back taxes?.
The FHA has clear guidelines for applicants with delinquent federal tax debt. To be eligible for an FHA loan, you must either:
- have signed a legitimate repayment agreement with the Internal Revenue Service and paid on time for at least three months in a row.
- have been granted authorization by the IRS to postpone paying the outstanding tax debt
The lender will need to verify this information during the underwriting process. While an approved payment plan is required, unpaid taxes do not automatically disqualify you from an FHA loan.
Tax Deed investing 101 – Buying $50 Property
FAQ
Does owing the IRS affect buying a house?
Can you sell your house if the IRS has a lien on it?
How long can the IRS put a lien on your house?
Will the IRS remove a tax lien?
Should you buy a home with a tax lien?
A tax lien on the home of your dreams doesn’t have to be a headache. If you purchase a home with a property tax lien, you should expect that you’ll have to catch up on more maintenance work than normal. The home of your dreams comes with a caveat – in the form of a property tax lien – and you’re not sure what to do.
Can a real estate investor buy a tax lien property?
If the homeowner cannot pay their property taxes, then the county will typically sell a tax lien to cover the expenses of the local government. At that point, real estate investors have the opportunity to buy a tax lien property. A tax lien property has a legal claim against it due to unpaid property taxes.
Can I sell or refinance my home if I have a tax lien?
If there is a federal tax lien on your home, you must satisfy the lien before you can sell or refinance your home. There are a number of options to satisfy the tax lien. Normally, if you have equity in your property, the tax lien is paid (in part or in whole depending on the equity) out of the sales proceeds at the time of closing.
Can you get a tax lien if you don’t pay property taxes?
Homeowners can receive a tax lien against their home if they neglect to pay their property taxes. As mentioned, liens are always attached to a property, not a person. So, let’s say you find the home of your dreams and are very excited to put an offer in on it. Only then do you discover that it has a tax lien.