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How an IRS tax levy on your residence affects a potential sale

A tax levy arises when the IRS seizes your assets to satisfy outstanding tax debts. When it comes to your home, the consequences can be particularly intricate.

An IRS tax levy on your personal residence can be particularly challenging. It can affect your ability to sell the property and potentially reshape the entire financial transaction.

Difficulty in selling

The presence of an IRS tax lien can make it more challenging to sell your home. Prospective buyers may be hesitant to purchase a property with a federal tax lien, and some lenders may be unwilling to provide financing for such a transaction.

Title issues

An IRS tax levy leads to the filing of a Notice of Federal Tax Lien against your property, creating a claim on all your assets, including your home. When attempting to sell your home, you must address the IRS lien in order for the buyer to obtain a clear title.

Sale proceeds

The IRS has the right to claim the proceeds from the sale of your home to satisfy your tax debt. This means that any profit you may have anticipated from the sale may go towards paying off your tax liability.

Release of lien

Before you can sell your home, you will need to work with the IRS to get the tax lien released. This typically involves paying off the tax debt or negotiating a settlement with the IRS. Once you have satisfied the debt, the IRS will release the lien and allow you to transfer clear title to the buyer.

Timing issues

The process of addressing a tax levy can be time-consuming, potentially introducing delays to your plans of selling the property. Whether you seek to appeal an IRS levy or get relief through other avenues such as discharge or subordination, early intervention is important to navigate the complexities efficiently and minimize disruptions to the sale timeline.

Potential for short sale

In situations where the home’s value falls short of the outstanding tax debt, a short sale may be an avenue worth exploring. This involves selling the property for an amount less than the outstanding mortgage and utilizing the proceeds to mitigate as much of the tax debt as possible. Short sales are not as common as they once were, but an estimated 2,000 homeowners turned to this solution in the first quarter of 2023.

Navigating the sale of your home while dealing with an IRS tax levy on your personal residence adds layers of complexity and potential hurdles to the process. It is necessary to fully understand these intricacies to facilitate the sale while managing the financial obligations imposed by the IRS.