Can the IRS Take Your House?
EG
Summary:
The IRS can technically take your house to collect delinquent tax debts but is unlikely to do so. However, there are other types of property the IRS is more likely to seize.
Most of us dread paying our taxes. Not only do you hate to see the money being taken from your paycheck every month, but the process of filing your tax return can also induce anxiety. After all, what if you do it wrong and end up underpaying? What recourse can the IRS take?
In most cases, the Internal Revenue Service (IRS) will find a way to get the money you owe. And technically, that can include seizing your home and other personal property. The good news is unless you’ve intentionally underpaid — and by a pretty considerable amount — it’s unlikely the IRS will take your home.
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Can the IRS take your home?
The Internal Revenue Code section IRC 6331 gives the IRS the right to seize property to collect a delinquent tax debt. This type of IRS seizure is known as a levy. Technically the IRS can issue a levy if you’ve failed to either pay your taxes or arrange to pay your taxes, and the IRS believes the levy is the best way to collect what you owe.
The good news is that, for the average taxpayer, IRS seizures are extremely unlikely. First, while levies are relatively common — in 2017, for example, the IRS issued more than half a million of them — levies of homes are very uncommon. In fact, in the same year, the IRS only conducted about 300 property seizures.
Generally speaking, the IRS only issues levies on real property in extreme circumstances. In other words, they aren’t seizing homes of average taxpayers who have underpaid on their taxes. Instead, they are issuing them to wealthy individuals and businesses who have committed tax fraud.
Pro Tip
The IRS is unlikely to issue a levy for your home but may issue a levy on some other property, such as your wages, future tax refunds, or financial accounts. As a result, it’s still important to pay your taxes.
Can the IRS seize a jointly-owned property?
The IRS can still seize your home even if you own it jointly with a spouse or family member, even if that co-owner doesn’t have any delinquent tax debts.
The IRS levy process
Before the IRS can place a levy on your property, it must first meet the following four requirements:
- The IRS assessed the tax and sent you a tax bill (known as a Notice and Demand for Payment).
- You failed to pay the tax you owed.
- The IRS sent a levy notice (known as the Final Notice of Intent to Levy and Notice of Your Right to A Hearing) at least 30 days before the levy.
- The IRS sent advance notification of Third Party Contact, letting you know it may contact third parties about your tax liability.
Property subject to IRS levies
The IRS can seize many different types of property to settle your tax debt. First, it can take real property such as your home, car, or boat. It can also take physical business assets if you have them.
While the IRS can take physical property, it’s more likely for the agency to issue levies on financial accounts, which are technically your property held by someone else. These financial assets can include:
- Wages
- Retirement accounts
- Dividends
- Bank accounts
- Licenses
- Rental income accounts payable
- Cash loan value of life insurance
- Commissions
The best way to avoid running into these problems with the IRS is to file your taxes correctly. Of course, that’s sometimes easier said than done. If you need help understanding what taxes you’re responsible for, you may benefit from using tax software or enlisting the help of a tax professional.
However, if you already owe taxes and need tax relief, you may want to work with a tax relief company to get the help you need instead.
What happens after your property is seized?
After the IRS seizes your property, the first thing it will do is calculate a minimum bid price. The IRS will provide you with a copy of the calculation, as well as give you the opportunity to challenge the fair market value. For example, you might challenge the IRS’s determination if you believe the property is worth more than the IRS claims.
Once that step is complete, the IRS will announce the pending sale of the item to the public. After giving public notice and providing you with a notice of sale, the IRS will wait at least 10 days before selling the property. Once the property has been sold, the IRS will use that money to pay off the back taxes you owe.
Pro Tip
If the seized item is worth less than your tax debt, you may still owe the IRS. But if the IRS is able to sell an item for more than you owe, you will receive a refund.
How to get your seized property back
If the IRS has already issued a levy on your property, it may not be too late to get it back. As long as the IRS hasn’t sold the item yet, you have the opportunity to resolve your tax liability and request a levy release. Generally speaking, you can have a levy released in the following situations:
- You paid the tax amount you owed.
- The collection period ended before the levy was issued.
- Releasing the levy will help you pay your taxes.
- You set up an installment agreement.
- The value of the property is more than what you owe and releasing the levy won’t hinder the IRS’s ability to collect the owed taxes.
The IRS may also release a levy if you can show it has caused an immediate economic hardship. The IRS may release a levy on your bank account or another financial account if it’s caused hardship, but it must release the levy on your wages if it has created a hardship. You’re considered to have an economic hardship if you can’t meet your basic and reasonable living expenses.
Of course, having your levy released due to a hardship doesn’t mean you don’t owe the taxes anymore. The IRS may simply find another way to get its money or work with you to set up a payment plan.
Federal tax lien vs. levy
A levy isn’t the same thing as a tax lien. While a levy is when the federal government seizes your personal property, an IRS lien simply secures the government’s interest in the property.
If the government places a tax lien on your home, it has a financial stake in the property, similar to a lender when you have a mortgage. Just as you can’t sell your home without paying off your mortgage, you can’t sell a home with a tax lien without paying off your tax debt.
Just like having a levy released, the best way to have a federal tax lien released is to either pay your taxes in full or set up an installment agreement to pay your taxes over time. However, the IRS lien generally won’t be released until you’ve completed your installment plan.
Key Takeaways
- The IRS has the right to seize your property — known as issuing a levy — to collect a delinquent tax debt but won’t usually do so except in extreme situations.
- Before the IRS can issue a tax levy, it must first assess the tax and send you a bill. If you fail to pay it, the agency must send a levy notice.
- The IRS can issue levies on many types of property, including your home, car, boat, wages, bank account, retirement accounts, life insurance, and more.
- Once the IRS has issued a levy on your property, it will sell the item to pay off the tax debt. However, you can stop the levy by paying off the debt first.
EG
Erin Gobler is a Wisconsin-based personal finance writer with experience writing about mortgages, investing, taxes, personal loans, and insurance. Her work has been published in major outlets, such as SuperMoney, Fox Business, and Time.com.
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