Can I Sell or Refinance My Home If I Have a Tax Lien?

Aug 19, 2013 By Nielsen Law Group In Taxation No Comment Tags : , ,

So here’s the situation, interest rates have dropped and you want to refinance your home at a better rate. But you can’t because you also owe money to the IRS and they’ve filed a tax lien against the property. Sound familiar? Until recently, tax liens were a real barrier to doing anything with your home. But recently, the IRS has become more flexible on this front because of their recognition of the challenging economic times we’re navigating. And it applies if you’re trying to sell your home as well.

The simplest way to get a tax lien addressed is to pay it. But many times that’s not an option and if that’s the situation you’re in, there’s still hope. The IRS will work with taxpayers in a number of different ways.

  1. If you’re trying to sell your property, the IRS may be willing to discharge the property so that it can be sold free of the lien. Either the buyer or the seller can apply for the discharge. IRS Publication 783 has the details and the forms necessary to pursue this option.
  2. If you’re trying to refinance, the IRS may be willing to get behind the refinancing lender (called “Subordination” because the IRS subordinates their tax lien to the new lender’s security interest on the property) so that the refinance can go through. If this option makes the most sense, the details can be found in IRS Publication 784.
  3. And in either case, you can also request that the IRS withdraw the lien altogether. It won’t eliminate the tax debt but there won’t be any encumbrance against your property and any buyer or refinance lender will have the assurance they need that the IRS will not compete with them regarding the property. To request the withdrawal, use IRS Form 12277.

There are nuances and intricacies in each of the three options above so it may make sense in your case to consult with your tax attorney. But the great news is that there are options and you may be able to sell or refinance even if you owe the IRS money and have a tax lien.

By: Evan A. Nielsen (Licensed in California)