What Is an IRS Tax Lien?
How a Federal Tax Lien Affects Homeowners
- Credit impact. The filing of a Notice of Federal Tax Lien can affect your ability to obtain credit. As of this writing, the three major consumer credit bureaus have generally stopped including federal tax liens on standard consumer credit reports; however, some lenders and specialty reporting agencies may still access lien records through public filings.
- Financial flexibility. Lenders and title companies routinely search public records. A filed lien can complicate or block access to new financing.
- Duration. The lien generally remains in place for up to 10 years from the date the tax was assessed. In certain circumstances, the IRS can refile the lien to extend its effectiveness beyond that period.
How IRS Liens Affect Property Ownership Rights
If there is a federal tax lien on your home, the lien will generally need to be addressed – either through payment, discharge, or another IRS-approved process – before or at the time the sale is completed. Normally, if you have sufficient equity, the lien amount is paid out of the proceeds at closing. If the home is being sold for less than the lien amount, you may apply to the IRS for a certificate of discharge. If approved, this removes the lien from that specific property, allowing the sale to move forward. Approval is subject to IRS review and is not guaranteed.
Lenders require a clear title. A federal tax lien can block or delay refinancing. However, the IRS allows a process called subordination, which does not remove the lien but lets the lender’s interest move ahead of the IRS’s claim – making it possible to refinance or restructure a mortgage.
Any transfer of ownership of property subject to a federal tax lien may require the lien to be addressed. The IRS has priority over most other creditors once the Notice of Federal Tax Lien is filed.
What Happens If You Sell a Home With an IRS Lien
- Lien with sufficient equity. If the sale price exceeds the lien amount, the tax debt is typically paid at closing from the proceeds, and the sale moves forward.
- Short sale scenario. If the home is worth less than what you owe the IRS, you may apply for a certificate of discharge. Whether the IRS approves the application depends on the specific facts and IRS criteria. If approved, the lien is removed from that specific property, but does not eliminate your tax liability – you still owe the remaining balance.
- Certificate of Subordination. If a lender needs to be in a superior position to the IRS to issue a loan to a buyer, subordination may be requested.
IRS Tax Liens vs. IRS Levies - Know the Difference
Tax Lien
What it is
Effect
Automatic?
Tax Levy
What it is
An actual seizure of property
Effect
Takes the property to satisfy the tax debt
Automatic?
Requires additional IRS steps and notice
Tax Lien
Tax Levy
What it is
Effect
Automatic?
Can the IRS put a lien on your house?
Does an IRS lien mean the IRS will take my home?
Can I sell my house if there is an IRS lien?
How long does an IRS tax lien last?
Can an IRS lien affect my mortgage or my ability to refinance?
Does the IRS take the whole property or just the taxpayer’s share?
How can an IRS lien be removed?
Options for Resolving an IRS Tax Lien
- Pay the debt in full. This is the most direct resolution. By law, the IRS is required to release the lien within 30 days of receiving full payment, though processing times may vary.
- Installment Agreement. If you cannot pay in full, an installment agreement allows you to pay over time. In some cases – particularly if you owe $25,000 or less and use a Direct Debit Installment Agreement – you may qualify for a lien withdrawal after meeting certain conditions.
- Offer in Compromise (OIC). The IRS’s Offer in Compromise program allows certain taxpayers to resolve their tax debt for less than the full amount owed. Eligibility is based on strict IRS criteria, including income, expenses, asset equity, and ability to pay. The IRS accepts only a portion of OIC applications – not all taxpayers qualify, and the program is not appropriate for everyone.
- Discharge. Removes a lien from a specific piece of property, typically used in a property sale.
- Subordination. Allows a lender to take priority over the IRS, often used to facilitate refinancing.
- Withdrawal. Removes the public Notice of Federal Tax Lien under qualifying circumstances, though the underlying debt may still be owed.
Conclusion
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Table of Contents:
- What Is an IRS Tax Lien?
- How a Federal Tax Lien Affects Homeowners
- How IRS Liens Affect Property Ownership Rights
- What Happens If You Sell a Home With an IRS Lien
- IRS Tax Liens vs. IRS Levies – Know the Difference
- Frequently Asked Questions
- Options for Resolving an IRS Tax Lien
- Conclusion
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Disclaimer
The information provided in this article is for general informational and educational purposes only and does not constitute legal, tax, or financial advice. This content is not intended to replace professional advice from a qualified tax attorney, certified public accountant (CPA), or enrolled agent.
Tax laws and IRS policies are complex and subject to change, and individual circumstances vary. Any actions taken based on the information contained in this article are done at the reader’s own discretion and risk.
No attorney-client or professional relationship is created by reading or relying on this content. For advice specific to your situation, you should consult a qualified tax professional or legal advisor.