Can the IRS Take My House for Unpaid Taxes?

Yes, the IRS can legally seize your primary residence for unpaid taxes if you owe over $5,000, but this rarely happens. The IRS only turns to home seizure in cases where it has exhausted other options, and the agency must get approval from a district court judge or go through the state’s foreclosure process. 

Most people who owe back taxes never have to worry about losing their home, just as they don’t have to worry about going to jail. The IRS has many options to help taxpayers get out of debt and back into compliance. To get help now, contact us at the Timothy S. Hart Law Group today. 

Legal Basis for IRS Home Seizure

The IRS has the legal right to seize your property if you don’t pay your taxes, but certain items, including your home, are usually exempt from seizure. However, subsection (e) of 26 U.S. Code § 6334 explains that homes are not exempt from seizure for unpaid taxes if a district court judge approves the seizure. This part of the code also explains that the IRS cannot seize a taxpayer’s personal residence or real property owned by the taxpayer and used by other people as a residence if the taxpayer owes less than $5,000. 

Alternatively, the IRS may be able to foreclose on the home after issuing a tax lien. Tax liens attach to all of your assets, including your home, making foreclosure possible. However, the IRS very rarely takes this avenue as the agency would have to compete with other lienholders, such as your mortgage company, that are likely to have precedence over the IRS’s lien.

IRS Notices About Home Seizure

The IRS doesn’t take your home without warning. In fact, before seizing any income or assets, the agency must provide taxpayers with the proper notice. In most cases, the agency sends several demands for payments and reminders of your balance due. If you don’t take action, the IRS will eventually send you a levy notice. 

The CP504 is generally one of the first levy notices that you’ll receive. Due to the language used in this letter, many people think that it threatens to take your home or other assets. However, this letter really says that the IRS is going to seize your state tax refunds, and if you continue to not pay, the agency may take other assets. 

After that, you may also receive other intent to levy notices that mention seizing specific assets and outlining your right to a hearing. Usually, the IRS starts with wage garnishment or bank account seizure. If you get these notices, take advantage of your right to a hearing. 

If you request the hearing by the date on the levy notice, you will get to suggest alternative ways to resolve your tax debt—such as setting up payments. If you do nothing, the IRS will move forward with seizing your assets, and as explained above, in extreme cases, that may involve your home.

Can the IRS Take Your Home Without Warning?

By law, the IRS must give you a 30-day warning before taking your home or any other assets. However, if a jeopardy levy is involved, the agency doesn’t have to give you a heads-up. A jeopardy levy applies in cases where the IRS has a legitimate belief that they may not be able to collect the tax unless they take action now. 

What to Expect If the IRS Seizes Your Home

If the IRS moves forward with seizing your home, the agency will calculate a minimum bid. When the home goes up for auction, this will be the starting bid, and the home will not be sold for less than this amount. However, if you disagree, you get a chance to counter. 

You obviously don’t want the IRS to take your home and sell it for less than it’s worth. To counter the minimum bid, use comps from your area, an appraisal, and/or a letter from a disinterested real estate agent to show the IRS that your home is worth more. 

Once the minimum bid has been established, the IRS will give you notice of the sale and publish public notice. The auction can be scheduled 10 days after the public notice is posted/published. Once the home has been auctioned off, the IRS will apply the proceeds of the sale to your tax debt, but they will also deduct the cost of the auction and any related collection costs from the sale proceeds. 

If the proceeds cover your tax debt, the IRS will release the liens against you. The agency will also give you any money that is left over from the sale. 

How to Get Your Home Back After the IRS Takes It

If the IRS seizes your home and sells it at auction, you have two years from the date of the seizure to request the money back. You typically need to go through the appeals process to make that request. Ideally, however, you should try to have the agency release the seizure before they auction off your home. 

The IRS will release seized property in the following situations:

• You pay the tax debt in full. 
• You show that the collection statute for the tax debt expired before the IRS started the seizure.
• You prove that releasing the seizure will help you pay the tax bill. 
• You establish that the seizure is causing economic hardship.
• You show the IRs that the value of your home is a lot more than you owe and that they can collect the tax debt without taking your home. 

In some cases, you can also set up an installment agreement that says the levy must be released. Before agreeing to a payment plan, make sure you understand if its terms allow for a levy release.

Redeeming Seized Real Estate: How to Buy Your Home Back

If your home is seized for back taxes, you have 180 days to buy it back. You can also buy back property that was owned by your relative and seized by the IRS before their death as long as you are an heir to their estate through a will, intestacy laws, etc. Estate administrators/executors, any person with an interest in the property, or anyone with a lien interest in the property may also redeem it within 180 days after the sale. 

To get the property back, you must pay the winner of the auction their purchase price plus 20% annual interest compounded daily. Without taking compounding into account, this means that you’re roughly paying the purchase price plus 10% if you wait the full 180 days. For most homeowners, this never happens. Usually, this process plays out when the IRS seizes commercial property for unpaid business taxes. 

FAQs About IRS Home Seizure

What if the IRS seizes a home with a mortgage against it?

If you took out the mortgage before the IRS issued the federal tax lien, the mortgage holder will get paid first out of any proceeds from the sale. Then, the IRS will get the remaining amounts. The IRS may need to coordinate with the mortgage company when seizing the home.

What if my mortgage lender forecloses before the IRS seizes the home?

If there is a tax lien on the property, the IRS will be in line for the proceeds of the sale after the lender. The lender will pay the IRS and any other lienholders in order of priority. If there are any funds remaining, they will go to you (the homeowner). 

Does a tax lien against my home mean the IRS will take it?

No. The IRS issues tax liens when you owe more than $10,000, and a tax lien attaches to your home and creates the legal basis for seizure. However, in most cases, the IRS won’t actually seize the home.

What if the state also has a lien against my home for unpaid taxes?

If you sell the home, the proceeds of the sale go to the lien holders in order of priority. If the state filed its lien before the IRS, the state will have priority and vice versa. Note that IRS tax liens usually only last about 10 years, but many state tax liens last much longer. 

Can the IRS make you homeless?

Although the IRS can legally seize your home, they don’t do so if it would lead to severe economic stress. Thus, the agency is not likely to take your home if it’s going to make you and your family homeless.

Save Your Home: Get Help Now

Owing back taxes is stressful, especially if you’re worried about the IRS taking your home. It’s time to put the tax debt behind you, and when you contact us, we will help you figure out a resolution path. To get help now, contact us at the  Timothy S. Hart Law Group P.C. If you’ve received a seizure notice, don’t delay – the IRS will take action if you don’t respond within 30 days.