A federal tax lien on your home can seriously impede your efforts to sell or refinance your property. A buyer won’t take your home subject to the lien—you’ll have to pay off the value of the lien before you can complete the sale.
Fortunately, this doesn’t always require paying off the full amount of your IRS tax debt. You just need to compensate the IRS for the value of the lien interest.
The IRS Lien Interest
The IRS lien interest will be in a junior position to the first mortgage lender’s interest, meaning that the mortgage lender gets first dibs on the sales proceeds. There may also be other interests senior to the IRS tax lien interest.
For example, if you sell your home for $400,000, owe $300,000 on your mortgage and $40,000 on another loan senior to the IRS lien, and pay $20,000 in closing costs, there would be $40,000 left over for the IRS. This is the value of the IRS lien interest.
If you pay the IRS $40,000 they may discharge their lien against your home. You can request the discharge using Form14135, Application for Certificate of Discharge of Property from Federal Tax Lien.
You can also request a lien discharge in some other situations:
- You have other valuable property subject to the IRS lien that is worth at least twice as much as the IRS lien interest and any interests senior to the IRS lien.
- The IRS lien interest is worthless. This could be the case if you have an underwater mortgage and the mortgage lender would receive the full proceeds of a sale.
- You can agree to have the sales proceeds held in escrow and subject to the same claims and in the same order as the interests in your home.
Keep in mind what a lien discharge actually means is that the lien is removed from a specific piece of property. The tax lien remains in effect against all of your other property, and you still owe the IRS your full tax debt (minus any amounts paid to secure the lien discharge).
If you need help negotiating a lien discharge or negotiating a resolution to your tax problems, consult with a tax attorney.
Get help with tax lien withdrawals and releases by calling The Gartzman Law Firm at (770) 939-7710. We can help stop bank account levies and wage garnishments before they happen and find a creative solution to your tax problems.