Can the IRS Really Take My Home for Unpaid Taxes?
Yes, if you have unpaid taxes, the IRS has the right to seize your home through a tax levy. If the IRS seizes your home for unpaid taxes, it uses the money from the sale to cover the cost of seizing and selling the property. Then, it applies the remainder to your tax bill. You can apply for a refund if there's any money left.
The IRS rarely seizes primary residences. The agency always tries to explore other collection options before taking your home. However, the IRS does have the legal right to seize homes, and the agency will do so if necessary. If you have unpaid taxes, you must be aware of this threat and learn how to prevent the IRS from taking your home.
How Do You Know If the IRS Is Going to Take Your Home?
An IRS home seizure is never a surprise. The IRS will send you several notices before taking your home or any other asset. The last notice is the Notice of Intent to Levy and Notice of Your Right to a Hearing. When you receive this notice, you have 30 days to pay the tax bill, set up a payment arrangement, or appeal. If you don't act in this time frame, the IRS will move forward with the seizure.
However, in rare cases, the IRS can seize your home more quickly. The IRS does not have to give you a 30-day notice if the collection is in jeopardy. This applies if the IRS has a credible reason to think it may not be able to collect the taxes unless it acts quickly.
Additionally, if you owe employment tax (payroll withholdings from your employees) and you requested a Collection Due Process appeal during the last two years, the IRS can also seize your home or other assets without the 30-day warning. This is called a disqualified employment tax levy (DETL).
How Does the IRS Take People's Homes?
The IRS can seize your home under U.S. Code 6334(e)(1), the IRS can obtain court approval to levy a home for unpaid taxes, but the tax debt must be over $5,000. The IRS rarely takes homes through this route.
Alternatively, the IRS can take your home through foreclosure. If the IRS issues a federal tax lien against you, the lien attaches to all of your property including your home. The IRS has the right to foreclose the lien through a foreclosure lawsuit under local law. This process is similar to how a mortgage holder forecloses against a homeowner.
What Happens If the IRS Takes Your Home?
Before selling your property, the IRS will calculate a minimum bid price. This reflects the value of the home, and it's the lowest price the IRS will accept for your home. This ensures that the IRS doesn't sell your home for much less than it's worth.
If you disagree with the price, you can bring forward information about the house's fair market value. You should contact a tax professional to help you with this. It's a complicated process.
Once the minimum bid is established, the IRS will give you notice of the sale and post public notices in newspapers or on flyers. The IRS has the right to auction off your home ten days after publishing the public notice of sale.
How to Get Your Home Back From the IRS
You can request a seizure release if the IRS seizes your home or any other property. The IRS must release home seizures if any of the following apply:
- You paid the tax debt in full.
- You set up an installment agreement that allowed the seizure to be released.
- The collection statute expiration date occurred before the IRS issued the seizure.
- Seizing your home would prevent you from covering basic living expenses or cause other undue financial hardship.
- The value of your home is more than you owe in taxes, and the IRS will be able to collect the tax debt without seizing your home.
If you request to have the IRS release the seizure of your home and the agency refuses, you can appeal. You can appeal before the IRS seizes your home. Otherwise, if the IRS sells your home, you have two years from the levy date to request to have the funds returned to you.
How to Release a Levy on a Personal Residence
The IRS must also release an asset levy if it didn't follow the correct protocol during the levy process. A tax professional can help you assess if the IRS broke any rules while seizing your home. In particular, if any of the following happened, the IRS must release the levy:
- The asset was exempt from seizure — for instance, your home is exempt if you owe less than $5,000.
- The IRS seized the asset prematurely or before sending the required notices.
- You were in bankruptcy, and a stay was in place when the IRS started to seize your home.
- The cost of seizing and selling your home exceeds the fair market value of your home.
- You have a pending request for an Installment Agreement, Innocent Spouse Relief, or an Offer in Compromise.
- IRS already approved your request for one of the above programs.
- You have a pending collection due process case with the Office of Appeals or the Tax Court. Note that this rule doesn't apply if there is a jeopardy levy or a disqualified employment tax levy.
If the IRS didn't follow these protocols, it must give you your home back. The IRS can also return your home or stop the sale if you can prove that doing so is in the best interest of you and the government.
Can You Buy Back Your Home After the IRS Takes It?
Under the law, you have the right to buy back your home or any other real estate the IRS has seized and sold. You must act within 180 days and pay the purchaser's price plus 20% annual interest, compounded daily.
To illustrate, imagine someone bought your home from the IRS for $100,000, and you want to repurchase it exactly six months later. You must pay $110,514.07. That is the cost the purchaser paid plus the 20% interest. The daily compounding makes the price a little higher than you would typically expect at this interest rate.
What Happens If the IRS Seizes Your Home to Pay for Someone Else's Tax Bill?
If the IRS seizes your home to collect tax owed by someone else, you can appeal under the Collection Appeals Program. Alternatively, you can file a claim under Internal Revenue Code section 6343(b) or file a suit under IRC section 7426. If the IRS wrongfully seizes your home or other property, you have the right to sue the federal government for damages.
Are Homes Ever Exempt From IRS Seizure?
The IRS has a lot of power to seize assets for unpaid taxes, but it doesn't have unlimited power. The agency has to leave people with essentials so they can survive. The IRS cannot seize your home if you owe less than $5,000.
It also cannot seize your home without obtaining court approval or going through the foreclosure process in your state. This rule applies to your personal residence, but it also applies to any other homes you own that are used as residences with the exception of rental properties.
For instance, imagine you own a home that your mother lives in (for free) as well as your own personal residence. The IRS can only take these properties if you owe more than $5,000, the IRS obtains court approval, or the collection of the tax is in jeopardy. However, if you owned a home that was a rental, the IRS can seize that property more quickly.
Additionally, the following assets are also exempt from IRS seizures:
- Unemployment benefits.
- Certain types of annuity and pension benefits.
- Service-connected disability payments.
- Worker's Compensation
- Certain public assistance payments.
- Assistance from the Job Training Partnership Act.
- Income for court-ordered child support payments,
- Minimum weekly exempt income — this is the small amount of income the IRS must leave you if it garnishes your wages. It's based on National Collection Standards.
- Necessary schoolbooks or clothing.
- Undelivered mail.
- Certain amounts of fuel, provisions, furniture, and personal effects.
- Certain tools of the trade for your business.
The IRS cannot take the above assets regardless of how much you owe on your tax bill.
How Many Homes Does the IRS Seize Every Year?
The IRS doesn't publish data on how many personal residences it seizes every year. However, home seizures are rare. In fact, the seizure of homes, cars, and other personal and business assets is all relatively rare.
Generally, when the IRS levies assets, it takes tax refunds, wages, and bank accounts. In 2021, the IRS issued 305,610 notice-of-levy requests on third parties. This is when the IRS tells a third party, such as an employer or your bank to send money for your unpaid taxes to the IRS.
In contrast, the agency only levied (seized) assets in 96 cases. This number includes homes as well as any other physical assets seized by the agency in 2021.
Note that levies were low during 2021 due to the IRS suspending many collection actions during the COVID pandemic. In a typical year, these numbers are usually higher. For instance, in 2017, the IRS issued almost 600,000 third-party liens and seized property 323 times.
How Does the IRS Use Homes to Collect Unpaid Taxes?
Generally, the IRS only seizes homes in rare situations. However, the agency can use homes to collect unpaid taxes in other ways. In particular, the IRS issues hundreds of thousands of federal tax liens annually.
Once a tax lien has been issued, it attaches to your real and personal property for ten years. If you sell or refinance your home during this time, the IRS has the right to some of the funds.
Does Your Home's Value Affect Tax Resolution Options?
Even if the IRS doesn't seize your home, its value can impact your tax resolution options. If you apply for hardship status or for an offer in compromise, the IRS requires you to submit detailed information about your financial situation, including your home and other assets.
The IRS uses your home and other assets' equity to determine if you qualify for these programs. For example, the IRS may require you to pay a larger settlement for your offer in compromise agreement if you have a substantial amount of equity in your home. Similarly, the IRS may not approve your request for hardship status if you have a lot of equity in your home.
Can the IRS Seize Jointly Owned Homes?
If multiple people own a home, but only one of them owes back taxes, the IRS may still be able to seize the home. The rules vary based on the home's location and how the property is owned. For instance, community property laws vary from state to state.
With a joint tenancy, the IRS can seize the property, but the agency must compensate joint owners who don't owe the tax debt. Additionally, if the person who owes the tax debt dies before the other joint owners, the federal tax lien no longer attaches to the property. But if all other owners die first, the lien attaches to the entire property.
However, there can be exceptions to these rules based on state law. For instance, in Wisconsin, the death of the person who owes federal taxes does not remove the lien. The lien continues to attach to the property. To ensure you get the best help for your tax problems, you should work with a local tax pro who understands the laws in your state. They can help you much more effectively than a big tax resolution firm that doesn't understand the laws in your specific area.
If the home is owned as a tenancy in common, the IRS can also seize and sell the property as long as it compensates the other owners. However, with tenancy in common, the lien continues to attach to the home even if the owner with the tax debt dies.
Tenancy by the entirety is a type of property ownership that married couples can only use. The IRS can seize and sell the property if the couple is liable for the tax. However, the IRS can still seize the home if just one spouse is liable. It just has to compensate the other spouse. If the couple sells the home and only one spouse is liable, the IRS has a right to half of the proceeds from the sale.
What Happens If the IRS Seizes a Mortgaged Home?
If the IRS seizes a mortgaged home, the mortgage holder and the IRS receive proceeds from the sale. When more than one entity has a lien on a property, they all have different levels of priority.
Here's a very basic example: say the property has a mortgage — the mortgage lender generally has first priority. Then, imagine the homeowner took out a home equity line of credit against the home. This lender has the second-place priority. Then, let's say the IRS issues a federal tax lien and takes third priority. Finally, the local taxing authority issues a lien for unpaid taxes and takes fourth priority.
When the home sells, the proceeds go to each of the lienholders in order of priority. Each lien holder receives the amount of their lien and the remaining amounts go to the next lienholder in line. If the money runs out, lienholders with lower levels of priority may not receive anything.
Note that these are just examples. The order of priority is often based on the order in which the liens were filed, but there are exceptions.
How to Stop the IRS From Taking Your Home
You simply need to make arrangements on your tax bill to stop the IRS from taking your home. If you pay in full, the IRS will not seize your home. However, the IRS has many different options if you can't afford to pay your whole tax bill at once. They include monthly payment plans, settling for less than you owe through an offer in compromise, applying for hardship status, and more.
Contact a local tax pro to get help with unpaid taxes or other tax problems. Using TaxCure, you can search for local tax lawyers, CPAs, and enrolled agents and filter the results to find tax pros experienced with your specific concern. Don't let the IRS take your home. Get help from a tax pro today.