Can the IRS Really Take Your Home? Probably Not – and When They Can

If you’ve received an IRS notice indicating that the agency may place a lien on your assets or use a levy to seize them, don’t panic. Your home is still safe in most situations.

While the IRS can technically seize a taxpayer’s home to settle their tax debt, this is a very rare outcome for the agency. Almost any other form of tax resolution is preferable to seizing a taxpayer’s home. This post looks at the rules surrounding IRS home seizure, explains when the IRS may move forward with this collection action, and outlines how to protect your home and other assets.

Key takeaways:

• The IRS can legally seize your home. However, they very rarely do so.
• The IRS may foreclose on the home or get court permission to levy the home.
• You may be able to get your house back after a levy. You can typically buy the home back within 180 days.
• You should look into payment options as soon as possible. This can save you the stress of potentially losing your home.

What Happens Before the IRS Threatens to Seize Your Property?

When the IRS seizes a taxpayer’s assets to satisfy their tax debt, the agency gives them multiple chances to address the tax debt first. Remember, the IRS just wants the tax debt paid off—and they would rather get that done without the time, expense, and effort of seizing and auctioning off physical assets.

Depending on where you are in the collection process, you may have time left to explore your tax payment options and find a solution that helps you keep your assets.

Notice Timeline

The IRS will attempt to contact you multiple times before moving forward with a levy or lien. The notices they send include:

• CP14: This is a bill for the taxes you owe. They may have been included in your original tax return, added to an adjusted tax refund, or assessed because of a Substitute for Return filed by the IRS.
• CP501: If you do not respond to CP14, the IRS will move forward with CP501. This is the first reminder that you still owe money.
• CP503: The IRS becomes a little more urgent in this letter, telling you that immediate action is required. This serves as the second reminder of your debt.
• CP504: With this notice, the IRS tells you that they intend to place a lien on your assets or seize your assets with a levy. At this point, if you have not already taken action, you should immediately reach out to a tax professional.
• Letter 1058/LT11: This notice satisfies the IRS’s legal requirement to notify you of their intent to levy your assets. It also informs you of your right to appeal.

With the exception of the final letter, which gives you 30 days to respond, each of the notices gives you 21 days to pay your tax debt. If you do not pay or make other arrangements with the IRS, they will move to the next notice in the process. The timeline is a bit different if you owe more than $100,000; in this situation, you only have 10 days to pay or respond.

Collection Actions That Are More Likely Than Home Seziure

The IRS very rarely takes a taxpayer’s primary residence to cover their tax debt. Per the IRS, they only seize a taxpayer’s house if there is no reasonable alternative way to collect the tax debt from you.

Consider the other ways the IRS may involuntarily collect tax debt:

• Wage garnishment
• Bank account levy
• Levying other assets
• Intercepting state and federal tax refunds
• Liens that eventually require you to pay off the tax debt

Ideally, however, the agency prefers to work with taxpayers. If you reach out to the IRS, you can request an Installment Agreement, Offer in Compromise, or another voluntary agreement that allows you to get back into compliance with the agency.

Why Does the IRS Avoid Taking Homes?

Why is the IRS reluctant to take a taxpayer’s home? First, they specify that this is their last resort in the Taxpayer Bill of Rights. They realize that an individual’s home is often their most valuable asset—both financially and sentimentally.

Second, taking a taxpayer’s home without first exhausting every possible option is horrible optics for the IRS. The IRS already has a reputation for being harsh and unforgiving—a story about them taking a family’s home would further cement this image. Typically, the IRS only goes this route if a taxpayer has resisted every effort to settle the tax debt and is obviously not going to comply.

Does a Tax Lien Mean the IRS Is Going to Seize My Home?

A lien is the government’s legal claim against all of your property, and it attaches to your home. A federal tax lien can make it difficult for you to refinance or otherwise use your home’s equity. It also means that if you sell the home, the IRS will be entitled to some of the proceeds.

If you receive a notice of federal tax lien, that does not mean the IRS is going to seize your home. In contrast, a levy involves the actual seizure of your assets. If the IRS places a lien on your property, they have a legal right to your home up to the value of what you owe; if they levy your home, they actually take ownership of it.

Selling or Refinancing Your Home With a Tax Lien

If the IRS has placed a lien on your property, the lien will affect your efforts to sell or refinance your home. As long as there’s enough money left over to pay the IRS after the primary mortgage holder is paid off, the sale can typically go through without issue.

However, if the proceeds are not enough to pay the IRS in full, the buyer cannot obtain a clear title. The homeowner may need to request a lien discharge to allow the sale to go through.

The Process of Seizing Your Home

There are two main routes the IRS may follow to seize a taxpayer’s home.

Foreclosing on the Home With a Lien

If the IRS has placed a lien on your property, they can enforce a tax lien and foreclose on the taxpayer’s home. All parties with an interest in the home are notified. If the IRS is successful in court, the home is sold at auction. Liens are paid in order, so in most cases, the mortgage lender is paid off first from the proceeds. The IRS is then paid what they are owed. If there is anything remaining, the homeowner gets what is left.

The IRS can only go this route if selling the home would make financial sense for them. For example, if the home is worth $500,000 but has a $450,000 mortgage on it, it doesn’t necessarily make sense for the IRS to foreclose if they are owed $150,000. They won’t get the full amount owed but will still have to pay to foreclose on the house.

Requesting a Court Levy

The court may also seize your home by gaining approval in federal court, per U.S. Code 6334(e)(1). This is fairly challenging for the IRS, as they must prove that this is their only reasonable way of settling a tax debt. They have to show the court that they have exhausted all other reasonable remedies, including voluntary payment agreements, levies on other assets, and liens.

The IRS must also send a final notice via certified mail—that’s when you receive Letter 1058/LT11. In court, the judge will determine whether or not the IRS has met all the requirements to seize the home. If the IRS has met these requirements, the judge will issue an order allowing the IRS to seize the property. The IRS will then seize and sell the home to pay off the taxpayer’s tax debt.

What to Do If Your Home is Seized

The best time to respond is before a levy on your home is even being considered. When the IRS sends you the Final Levy Notice and Your Right to a Hearing, you have 30 days to request a Collection Due Process hearing. During that meeting, you can explain how home seizure would affect you and suggest payment arrangements.

However, if the IRS has already taken action to seize your home, you can still appeal. If you can prove that the seizure causes economic hardship, the IRS must prevent the levy or return the money to you. The IRS does not intend to make anyone homeless. Demonstrating hardship may prevent a home seizure.

For example, imagine you own a home in an area where house prices have risen dramatically in recent years. If your home is seized, you will not be able to afford to purchase a new one, nor will your income allow you to rent in the same area. Unfortunately, this is the case for many homeowners, as buying a home while owing back taxes can be very difficult.

Additionally, within 180 days of the home sale, you can get the home back via redemption. You redeem the property by paying back the purchase price plus interest at a rate of 20% annually compounded daily. This is a hefty amount for most taxpayers, but if you can pull the funds together, this is an option.

Note that anyone who has an interest in the property as well as your heirs, executors, and administrators may also buy back the home.

If your home has already been levied and sold, you may still fight to have the funds returned to you. This request must be made within two years of the levy. The IRS will return the funds to you if you can demonstrate economic hardship or pay the taxes in another way.

How Your Home May Affect Your Tax Options

Even if the IRS does not seize your home, your house could affect the options available to you. In particular, if you want to pursue an offer in compromise or partial payment installment agreement, the equity in your home could count against you.

The IRS expects you to put most of the value of your assets and disposable income into the settlement. Similarly, the IRS only allows certain expenses when evaluating your finances for these payment options.

If you have an extravagant home that far exceeds the limits for your area, that may affect your application. Consider, for example, Douglas County, Colorado. The allowable housing exemption for a family of four is $3,719 per month. If you own a $700,000 home with a monthly mortgage of $6,000, that significantly exceeds the allowable living expense. You’d need to prove that this expense is a necessary living expense if you want to qualify for an offer in compromise, a PPIA, or currently not collectible status.

However, in most cases, you don’t have to worry about the conditions above. If you owe less than $50,000 and can pay off the tax debt in 72 months (or by the collection expiration date if sooner), you will generally qualify to make monthly payments on your tax debt, and the IRS won’t even ask about your home.

Payment Options to Avoid a Lien or Home Seizure

Since the IRS prefers to settle tax debts via other methods than home seizure, you should take advantage of the payment options they provide to taxpayers. Depending on your income, assets, overall ability to pay, and the amount of time left until the Collection Statute Expiration Date, you may consider:

• Installment agreement: If you can pay your tax debt in full over 72 monthly payments, this option will allow you to avoid a levy or other collection actions. You may be able to get a longer term, but you will generally need to provide financial details in that situation.
• Offer in compromise: An offer in compromise settles your debt for an amount that reflects your financial status and ability to pay. You typically must have limited income and assets to qualify for this option – a tax pro can help you decide if this is a viable option for you.
• Currently not collectible: Taxpayers who would experience severe financial hardship if they had to pay their tax debt may be considered currently not collectible. Depending on how long is left in your collection period, the IRS may resume collection efforts if your financial situation changes.
• Penalty abatement: First-time penalty abatement or reasonable cause penalty abatement may give you the chance to significantly cut your tax debt, bringing it to a more affordable total.

When It’s Time to Talk to a Tax Professional

Realizing that the IRS can seize your home is a frightening wake-up call for many taxpayers, but it’s important to realize that this is a last resort for the IRS. You may have received a notice that they intend to levy your property, but they are more likely to seize your bank account or wages first.

Still, enforced collection actions can put you in a financial bind—and if you’re at the point where the IRS is planning to take more aggressive action against you, it’s time to talk to a tax professional. There are multiple payment options offered by the IRS, and with the help of a tax resolution specialist, you can figure out which one best suits your needs.

Get a free no-obligation consultation to figure out how to tackle your tax debt. Contact us online or call us at 877-369-5420 to claim your consultation.