August 22

Can I Sell My House if I Owe Back Taxes?


Do you want to sell a house fast, but you owe delinquent property taxes? Worry no more because selling a house with back taxes can be the answer if you are struggling financially!

Homeowners sell a house fast with the help of a closing attorney, all you have to do is pay the taxes owed or negotiate with the other party.

If you are interested in selling your house fast, read this article!

Can I Sell My House if I Still Owe Back Taxes?

Even if you owe back taxes, you can STILL sell your home and pay them off with the proceeds.

However, this DEPENDS on your property equity or how much your home is worth to how much you owe.

With this, the best thing you have to do is pay the delinquent taxes for your home sale proceeds.

What Are Back Taxes?

Back taxes are the taxes owed to the Internal Revenue Service that the homeowners fail to pay in full or in half during the time frame in a timely manner.

If a homeowner owes back taxes, he can incur penalties and fines. Also, in worst cases, property taxes owed can lead to legal action.

If you are asking, why is back taxes important?” The best answer is, “back taxes are essential for the society to function.”

If you are not paying your taxes, it can result in acquiring debt to the Internal Revenue Service. Hence, back taxes are also known as IRS lien.

Back taxes are divided into three categories. These consists of:

  • Income Taxes: Personal income taxes are based on salaries and wages. Also, a separate county tax will be added to this category.
  • Local Government Tax: These types of taxes include federal income taxes, state and municipal taxes. A taxing authority has IRS files which may serve as legal documents to notify the creditor that the Internal Revenue Service (IRS) has the legal power to claim your property if you neglect the payment of federal tax liens.
  • Property Tax Liens: These taxes are based on possessions such as real estate property. If you have a tax lien on your property, it can be challenging to have a property sale because most buyers prefer a clean title that is free from mortgage lien.

Hence, if you are interested in selling a house with delinquent taxes, the best thing you have to do is address it with a tax attorney for a professional guide.

However, if you don’t want additional fees, you can visit the federal government to hasten the real estate transaction.

How to Know If You Still Owe Back Taxes

There are various ways to check if you have back taxes and determine how much you owe. These steps are:

1) Check Property Tax

Any citizen can quickly look up to their property if it has an amount owed through the IRS. All you have to do is look for a responsible agency.

NOTE: Your country, city, tax entity, and property address are needed in this process.

2) Conduct Title Search

Asking a real estate agent to organize a title search for you is one of the most reliable ways to find out about any liens or unpaid taxes.

However, some other creditors may report the back taxes later, which may cause incorrect research conduct.

According to National Association of Realtors data, titling and deed problems caused 10% contract delays and 3% contract terminations in June 2021.

If this happens, talk to a tax attorney about handling any back taxes and other debts before your house goes under contract if you give the title company the right to claim your property.

Settle your tax liability, state taxes, lien amount, IRS tax lien, or any other unpaid income taxes to avoid the risk of repossession.

3) Visit IRS Website

If you don’t have enough time to do the work, the most convenient way to check if you have back taxes is to visit the website of the Internal Revenue Service.

Their website requires your property address to find out how much you owe on your property taxes, as it is public information.

Go to “view my property tax bill,” then enter your address.

You can instantly view your tax bills and even reach their dial tone through the contact information they provide if you have questions.

Also, the IRS will send you an email if you have unpaid taxes. This means that you have unpaid taxes if you are getting IRS notices.

What Happens if You Don’t Settle Your Back Taxes?

Different ways may happen if you owe property taxes and fail to pay them for a long time.

If you are the property owner, below are the possible scenarios you can experience if you default on the payment.

  • Legal action/lawsuits: Most title companies will sue you if you do not pay back taxes, as they have the legal authority to do this.
  • Seize your property and assets: If you put your real estate in a mortgage, most mortgage lienholders will have the right to seize your assets.
  • Report to the credit bureaus: Your credit score will be affected if you default in paying your back taxes. With this, your eligibility to apply for a loan will reduce because you have an unfavorable report.
  • Imprisonment: This is the rarest case if you do not pay back taxes, but it is POSSIBLE. If that money owed cannot be paid by the creditor and negotiation with the other party is no help, they can sue you and may put you behind bars.

What Is a Tax Lien?

When an owner is behind on their taxes, the government may place a tax lien on their property or other assets.

Municipalities have the right to offer tax liens for sale to financiers.

What does it do? If the financiers buy the tax liens from the municipalities, the latter has the right to recoup the tax amount plus interest from property owners.

Hence, a tax lien means a legal action brought against the assets of a person or company that does not pay taxes to the government.

However, there is a certain thing that you need to know about how tax liens work.

  • A tax lien does not imply that the government has seized your home. Governments use liens to ensure that they will be compensated if you decide to sell your home. This can hinder your home sale proceeds because your lien release is not on the verge of its closing process. To avoid this, it must be paid in full or partially.
  • Your city or county government has the right to seize your home through the foreclosure process if you continue to ignore a property lien. If you owe taxes, the same applies: If you ignore your debt for an extended period after the IRS has filed a tax lien against your home, this agency may seize your property.

Types of Tax Liens

There are different tax liens you must note to pay, and these are:

Property Tax Lien

Failing to pay your obligated property taxes will result in the government filing a property tax lien against your house. Always remember to pay your obligations to avoid situations like these!

State Tax Lien

Owing state income taxes to your state’s department of revenue will result in the state filing a tax lien against your house.

Like all other liens, you must pay off the due amount to remove the lien of your house.

Federal Tax Lien

If you haven’t paid your federal income taxes on time, the IRS will file a tax lien against your house.

Any form of refusal to pay for the tax will force the government to go for a legal claim against your house, resulting in a federal tax lien.

The lien will act as the safeguard tool of the government to properly secure their interest in your possessions. This includes all your real estate, personal property, and even financial assets.

How to Sell a House With a Tax Lien

If your house has a tax lien on it, listed below is the process for how to sell it!

1) Sell Your Home To Cover The Tax

If you don’t have enough money that can be used to pay your tax debt, the best thing you can do is have the property sold.

But finding a buyer for a real estate property with tax debt may be difficult, but there will always be a buyer who won’t think twice!

However, the property value will decrease as they hand cash offer to help close the tax debt.

Additionally, your HOME EQUITY is the game changer for this situation. It will not be a problem if you have enough equity to sell your house.

But if you do not have enough equity to pay your tax debt or mortgage balance, this is the time you have to ask for assistance from a real estate agent, but this comes with closing costs.

2) Pay Off Debt

If you don’t have enough equity, the best action is to settle your tax debt before putting your house on the market.

There are different ways to pay off your debt, and these are:

  • Payment plan: You may be able to pay off your tax debt in monthly installments if you work with the IRS and other local governments organization to set up a payment schedule. Depending on the amount you owe, this might take some time as they will think thoroughly about the fair cash offer you need to pay.
  • Offer in compromise: If the IRS or your state has filed a tax lien against you for unpaid income taxes, you may be able to remove the lien for less money if you make an offer in compromise. However, negotiating will not help in most cases if you have a mortgage lien because most lienholders want to be paid in the total amount.
  • Personal Loan: Taking out a personal loan to pay your tax debt is an example of a consolidated loan. This might be the best option you can run for if you want to sell your house fast. However, some lenders might not be willing to give you a long because you have unpaid taxes.

3) Request Subordination

Asking the IRS to subordinate your federal tax lien is an option. This does not eliminate your lien; rather, it moves it behind other mortgage loan creditors.

Tax liens typically have priority over other debts you owe. Therefore, the owner of your tax lien will be compensated before your mortgage lender when you sell your home.

Your mortgage lender may be behind your tax lien, making it simpler to sell your house and complete the transaction.

Frequently Asked Questions (FAQs)

Listed below are the possible questions you might ask if you consider selling a house with back taxes.

Do You Have to Pay the IRS When You Sell Your House?

YES! Having an existing tax debt will hinder your sale proceeds. So if you want to sell your house fast, the best thing to do is pay the IRS the total amount.

How Much Does the IRS Take When You Sell a House?

Profits from home sales are taxed as capital gains in 2021 at federal rates of 0%, 15%, or 20%, depending on income.

For homeowners, the IRS offers a write-off that allows single filers to exclude up to $250,000 of profit and married couples filing jointly to exclude up to $500,000.

How Long Can You NOT Pay Property Taxes?

It DEPENDS! Every state has different laws on this matter. To know how much you cannot pay, check your federal laws.

Final Words

Selling a house with a back tax lien is time-consuming and can be a difficult process.

The best action is to pay the debt or look for capable buyers to pay the mortgage or tax debt!

However, if you want swift action, pay the monthly revenues to avoid a cost buildup. With this, the amount paid will not be a burden to you.


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