When you have outstanding federal tax debt, the IRS will come calling to collect monies owed, plus penalty fees and interest. Upon continued lack of payment, the IRS will move to collection, which could put your assets at risk of seizure. The big question many people ask is, can the IRS take my house? The simple answer is, it is possible, but the IRS often tries to make the seizure of a primary residence the last resort.
The IRS has set in place exempt property that the agency cannot seize, no matter how high your tax debt, even if you struggle to pay it. This generally includes items that are necessary for daily living, although some items also support your ability to work. This includes:
- Books and tools necessary for education, profession, business, or trade up to $3,125 total in value
- Necessary clothing
- Personnel effects, including furniture, provisions, and fuel up to $6,250
- Unemployment benefits, certain pension and annuity payments, and certain disability payments
- Undelivered mail
- Child support and workmen’s compensation payments
- Minimal wages necessary for daily living (a set amount calculated based on your filing status and country averages)
The Status of Your House
Your house is not listed under the protected assets, unless you owe $5,000 or less. However, you might be able to keep your house, especially if you have other assets that you can sell to pay off your debt. The IRS does not want to make taxpayers homeless; however, they do need to collect the debt. They might recommend you sell your home in order to pay off your debt, or they might end up seizing it if they feel it is the only way to get paid. Additionally, your house cannot be protected if a judge or magistrate has already approved the levy. Thus, it is possible that the IRS will seize and sell your home.
What Happens If They Do Sell Your House
If the IRS has no other alternative, they will seize and sell your home, even if it is your primary residence. They sell any interest you have in the property to pay off your debt. They determine a minimum bid price based on the market value of the home, and you have the right to challenge this. You have 10 days from the time they make a public notice of the selling of your home until the sale occurs.
The value they receive from the sale first goes to pay off any costs it has taken them for the seizure and sale, as well as your outstanding tax debt, which includes any interest and penalty fees. If the value of your home is above and beyond all of those costs, then you will get a refund. As stated above, if your tax debt is $5,000 or less, then your house is safe. If the net proceeds of selling your home will not make an impact on paying off your debt, then the IRS might look for other actions to take instead.
Avoiding Losing Your Assets
Just because you receive a levy notice in the mail with a claim against your home, it does not mean that is the end of the story. Upon receipt of the notice, you have 30 days to request a hearing to appeal the decision to seize your home or any other assets. You can also have the levy released through:
- Paying off your tax debt another way
- Entering an Installment Agreement
- Negotiating another tax relief option, such as an Offer in Compromise
- Improper issuance of the levy, such as on exempt property or no notice was given
You can also apply for the release of the levy if you feel that it creates an undue economic hardship or if you require the property to pay off your taxes. If the house’s value is higher than your tax debt and the IRS feels assured you will pay your debt without the levy, then they might choose to release the levy.
So, can the IRS really take your house to pay off your debt? Yes, they legally can if your debt is more than $5,000. However, the IRS is willing to find other avenues of collection before they kick you out of your primary residence. The above does not apply to any additional residences you might have, such as a vacation home or rental property.
If you find that you have a tax debt that you cannot pay and are afraid you might lose your home, contact Fidelity Tax Relief. Our tax professionals will discuss the options for paying off your debt or entering a tax settlement negotiation with the IRS to get the levy delayed or released. Call us today at 877-372-2520 to discuss your situation.