Can the IRS seize your house when you owe taxes?

January 28, 2020 by Carolyn Richardson, EA, MBA
wooden house and gavel

It’s the first question nearly everyone asks when they owe money to the IRS – can the IRS seize my house? Will they? The thought of losing what is the major asset in their lives (and sometimes their only true asset) strikes fear and terror into the hearts of many taxpayers who may find themselves falling behind on their taxes.

It seems like many taxpayers ask this question and assume that the answer is “yes” regardless of how much they owe to the IRS. But will the IRS seize your house? The answer to this depends on your particular financial circumstances, how much you owe the IRS, and why you owe them money in the first place.

Most taxpayers owe money to the IRS because their taxes due when they filed were either much higher than anticipated, or their payments were too low to cover the amount due. Not having enough money paid in or withheld to cover the tax due can be caused by a mistake the taxpayer made, or some other error that causes a person to be under withheld, such as a clerical error by the employer. Regardless of the reason for the payment shortfall, you are still responsible for paying the full amount of taxes due, even if the underpayment was through no error of your own.

The truth is that most taxpayers who owe the IRS money generally owe under $10,000. While that’s a big amount to most cash-strapped Americans, it’s not a large enough amount for the IRS to consider seizing your house. Houses are large assets which are difficult to take possession of, and once the IRS owns your house, they have to sell it to pay off your tax debt. There are many collection alternatives that the IRS offers, such as installment payment plans, that the IRS feels are more cost effective for them than property seizures. In general, if you are working with the IRS’s Collections division to work out a payment plan on your back taxes, the IRS will not attempt to seize anything other than any tax refunds you may be due on your next tax return or your state return.

Even if you are unable to pay your back taxes, the IRS is likely to attempt other collection methods in lieu of seizing your “hard” assets like a house or car. For example, if you are employed, they may garnish your wages as this is much easier for them to do because your employer is on the hook to send them the payments, not you. However, you will want to avoid this because the IRS will take most of your paycheck if they garnish your wages. Likewise, if you have bank or investment accounts, they may also seize those funds to pay your taxes.

In fact, the IRS will generally try to collect the amount due in any way possible that doesn’t involve seizing your house. The IRS typically seizes less than 500 assets per year for the entire U.S., and not all of those are houses. More likely, they will put a tax lien on your home rather than seizing it, which basically means that you cannot sell, borrow against, or even refinance the house without the IRS’s permission. Tax liens are much easier for the IRS to file and serve a similar purpose to property seizure. Keep in mind that if the IRS does allow you to sell or refinance your home, they will expect any taxes that are due to be paid from any proceeds. The IRS has at least ten years from the date the tax is assessed to collect payment from you, so they have time to attempt collecting from you in ways that do not involve taking away your house.

Of course, if you owe the IRS a substantial amount of back taxes, you may want to talk to a professional about your options. Having tax debt hanging over your head can cause a lot of stress and sleepless nights. While the IRS does allow taxpayers to reduce their liabilities through the offer in compromise program, having them accept your offer is difficult and time consuming, and the IRS rejects more offers than they accept. To increase your odds in having your negotiation successful, you may want to have a professional with expertise in the area of tax debt relief at your side, such as our Tax Debt Relief service.

Regardless of how much you owe, you can explore your payment options by visiting our website at https://www.taxaudit.com/tax-debt-relief-assistance for more information. And the peace of mind knowing you are not going to wake up to an IRS agent knocking on your door is priceless.

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Carolyn Richardson, EA, MBA
Learning Content Managing Editor

 

Carolyn has been in the tax field since 1984, when she went to work at the IRS as a Revenue Agent. Carolyn taught many classes at the IRS on both tax law changes and new hire training. In 1990, she left the IRS for a position at CCH, where she was a developer on both the service bureau software and on the Prosystevm fx tax preparation software for nearly 17 years. After leaving CCH she worked at several Los Angeles-based CPA firms before starting at TaxAudit as an Audit Representative in 2009. Carolyn became the manager of the Education and Research Department in 2011, developing course materials for the company and overseeing the research requests. Currently, she is the Learning Content Managing Editor. 


 

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