The IRS has the right to seize taxpayer’s homes for unpaid taxes, but this only happens in rare situations. Although the IRS wants to collect unpaid taxes, it generally explores multiple other options before taking someone’s home. However, there certainly are situations where the agency will seize a home and sell it to pay for unpaid taxes. 

In short, the answer is yes, but the IRS can take your home, which is unlikely. According to the IRS website, “The IRS also can’t seize your primary home without court approval. It also must show there is no reasonable, alternative way to collect the tax debt from you.”

The rest of this post goes into depth about this question. It explains when the IRS is likely to take someone’s home. It also looks at the collection process that occurs before the IRS resorts to taking a home, and finally, it outlines what to do if you want to avoid an asset seizure for unpaid taxes. 

Does an Intent to Levy Notice Mean That My Home Is at Risk?

Most people start worrying about losing their homes when they receive a notice of intent to levy from the IRS. This notice states that the IRS will start seizing your assets if you don’t pay your back taxes, and generally, it lists real estate or homes as one of the assets that the IRS can take. 

If you’ve just received this type of notice, don’t panic just yet. Your home is most likely not at risk. First, you have 30 days to respond to this notice and make arrangements before the IRS takes your assets. Second, even if you ignore the notice, the IRS will start seizing the assets that are the easiest to get. Generally, the agency starts with your state tax refunds. Then, they may garnish your wages, seize your bank account, or take other assets. Your home is always a last resort. 

To put it into perspective, the IRS sends over a half million levy notices every year, but the agency generally only seizes a few hundred assets. That number includes all assets and homes are a very small part of it. 

How Does the IRS Seize Homes?

Now, what if the IRS decides to move forward to seizing your home? How does that play out? If the IRS decides to seize your home, they have two different options. 

Under 26 U.S.C. 6334(e)(1), the IRS can seek court approval to seize your home from a judge or magistrate of a district court. Alternatively, the IRS can act on its federal tax lien and foreclosure upon the home. If there are other liens on the home (for example, a lien from a mortgage holder), the IRS will typically take the foreclosure route. 

Regardless of the legal mechanism that the IRS uses to seize the property, the process is similar after that point. After the IRS takes possession of your home, they calculate a minimum bid. If you disagree with the bid, you have a chance to dispute the fair market value used to come up with the minimum bid and explain why it should be higher. Then, the IRS will provide you with details of the sale and publish them in local newspapers or flyers. Ten days after providing public notice, the IRS can move forward with the sale. 

The IRS will auction off the home to the highest bidder. Then, it will use the proceeds to pay off your tax debt. If other creditors have a lien on the home, they will be repaid in order based on the priority of the lien. Finally, if there is any money left, the IRS will send you a refund. 

How to Avoid Losing Your Home

If you want to protect your home, take care of your tax debt as soon as you can. If you have received a notice of intent to levy, take one of the following actions before the 30-day deadline noted on the letter:

1. Pay your tax debt in full.
2. Set up an installment agreement to make monthly payments on your taxes.
3. Apply for an offer in compromise to pay your debt for less than you owe.
4. Prove financial hardship and get your account marked as currently noncollectible.
5. Appeal the levy.

Appealing a tax levy allows you to explain how the levy will affect you and offer alternatives. For example, you may explain that the levy will hurt your finances, and then you may offer to set up payments. Note that this is not the same as appealing the tax due. If you disagree with the amount due shown on your IRS notice, you should contact the IRS directly or reach out to a tax attorney to talk about your options.

How the Value of Your Home Affects Tax Debt Resolution Options

Even if the IRS doesn’t take your home, the value of your home can affect your options when you have tax debt. If you owe less than $50,000 and can pay off your tax debt within six years, you can typically set up a payment plan without disclosing any details about the value of your home. However, if you have defaulted on previous payment arrangements, owe more, or can’t pay off the balance within six years, you will need to complete a financial disclosure that includes the value of your home and other assets. 

Similarly, if you want to apply for an offer in compromise to settle taxes for less than owed, the IRS will take the equity in your home into account when assessing your offer. The agency takes into account 80% of the fair market value of your home minus your mortgage payment. 

Here’s an example. Say your home is worth $500,000. When you multiply that by .80, you get $400,000. Then, you subtract how much you owe on your mortgage. If you owe $350,000, the IRS will count $50,000 in equity. That means that the IRS will want that $50,000 included in any settlement offers that you make. 

However, there is an exception to this rule, and that’s if you apply for an offer in compromise based on equitable tax administration. With this type of settlement, the IRS takes into account extenuating circumstances when calculating your offer. 

Finally, if you want to get your account marked as currently not collectible, the IRS will also look at the equity in your home. If it’s a substantial amount, the agency may not agree with your request for CNC status. Instead, the agency may want you to sell your home or take a loan against the equity to pay off your tax bill. Getting a loan when there is a tax lien against your home can be hard, but if the IRS knows that you’re going to use the funds to pay off your tax debt, they will usually agree to subordinate their lien to the other ender.

FAQs About Seizing Your Home

Can I get my home back if the IRS takes it?

There is a small window of time between when the IRS seizes your home and sells it. After seizing the home, the IRS must provide public notice at least 10 days before the sale. A tax attorney may be able to get your home back after seizure and before the sale, but this requires paying the tax in full, proving economic hardship, or convincing the IRS to release the levy for other reasons.

If the IRS has seized and sold your home, you can file a claim to have the funds returned, but you must make the request within two years of the date of the levy. The IRS will generally only return the funds if you can pay the tax in another way or if you prove severe economic hardship. 

Can you buy a home if you owe back taxes?

Generally, it’s easier to buy a home if you don’t owe back taxes, but it may be possible if you do. If you are repaying the back taxes, you may be able to get a loan to buy a home, but it depends on the lender, your debt-to-income ratio, and other factors. If you’re ignoring the back taxes, you will struggle to get a traditional mortgage but may be able to make other arrangements, such as an owner-carry mortgage.

Is my home at risk if the IRS is threatening to seize property?

Your home may ultimately be at risk, but the IRS always starts by taking other assets such as wages, bank accounts, and investment accounts. Taking a home is a last resort for the IRS, and it only occurs in rare situations. 

Can the IRS make you homeless?

No, if you are in a situation where losing your home will make you homeless, the IRS will not take your home. If the IRS has threatened to take your home and you believe that it will lead to homelessness, contact the IRS, the Taxpayer Advocate Service, or a tax attorney. They can help you stop the levy based on extreme economic hardship. 

The IRS doesn’t take homes in situations where that is the taxpayer’s only asset. The IRS only takes homes in extreme situations.

Get Help With Unpaid Taxes

Luckily, the IRS doesn’t take homes very often, and if you make arrangements with the agency, you will be able to protect your home. Typically, the agency only resorts to taking your home in the very worst situations, such as if you are hiding assets, have serious payroll tax issues, have committed tax fraud, or have a very large tax debt that you have refused to pay and there is no other way to get the funds. To get help with delinquent taxes, contact us at Damien’s Law today.