February 10, 2019

How to sell Florida real estate with federal tax liens

picture of calculator and irs document

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Need to sell your Florida home but have a federal tax lien? ​The IRS has many ways to collect unpaid taxes, one of them by placing a tax lien on your real estate. A tax lien will make it more difficult to sell your property, especially if you owe more than your home is worth and can’t get the feds paid in full at resale, but there is always a way! 

What is a federal tax lien?

A federal tax lien is the government's legal claim against your property when you fail to pay your federal income taxes. The lien protects the government's interest in all your property including real estate. However, when you need to sell, this lien ties up the equity in the home and must be addressed.

There may or may not be enough proceeds from a home sale to pay off the IRS lien at resale.

If there is enough equity; prior to close you will need a current payoff statement from the IRS, and at close funds from the home sale will go to pay off the IRS, and they will simply issue a lien release clearing the property of their claim against it.

But what if a home sale will not pay off the IRS in full?

Then things get a little trickier, but there is still a solution. The IRS will in fact consider a partial payment in exchange for a lien discharge, when proven it is necessary to facilitate a sale. There is a process and some paperwork involved in this case. 

Keep in mind, this is not the same as settling your IRS debt. IRS has their own process for that and does not settle tax debt through property sales. They do however accept the partial payment to release the lien from the property so it can convey to the new owner. You will still owe the remaining excess IRS debt, but it will be cleared from the home you wish to sell.

You will want to make sure the professionals handling your property sale are well versed in dealing with federal tax lien issues. You will also want to get started far enough in advance of closing that there’s ample time to complete the process after contract but prior to close. IRS was never known for their speed or efficiency.

But what if there’s no equity at all?

If you owe more on your mortgage(s) than your home could sell for, AND have a federal tax lien in addition to that, then things get even trickier. In this case you are looking at a short sale to deal with your mortgages, and with likely little or nothing left for the IRS, you will need for them to discharge their lien…for nothing.

piiciture of home floating in water

This too can be done!  

Seeing as now you have multiple lien holders involved and several complex issues to sort out, you need some seriously expert help with this transaction and awesome timing to get this all done properly (PSSST….THAT’S WHAT WE DO!!!). Upon having the short sale approvals and the IRS lien discharge – you move forward to close as in any other sale. In a short sale your mortgage debt is generally always forgiven, but the IRS just releases their lien on the home, so you will still have to deal with the IRS at some later point.

Article adapted from: https://reidrealestategroup.com/sell-real-estate-federal-tax-liens/

Minna is the consummate professional. She delivered on every single item she said she would during our first conversation. Not only did she exceed expectations, she did it with a genuine concern for my situation. At every step of the process, her input and guidance was instrumental in helping to make my home an attractive property for buyers. She understands the market and uses that knowledge to her clients advantage. Selecting Minna was one of the best business decisions I ever made.

Tom

Minna Reid

Minna Reid is a Broker Associate at Florida Homes Realty & Mortgage, serving northeast Florida.

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