If you’re one of the 11 million Americans who owe back taxes to the IRS, you may be wondering how this impacts your ability to sell your home. Whether you’re struggling financially and can’t afford your tax bills or inherited a house with tax debt, it is still possible to sell the property. However, owing back taxes does complicate the sale process.
What are back taxes?
Back taxes are any taxes you didn’t pay on time that are now past due. Back taxes are generally owed to the federal, state, or local government from a previous tax year. Back taxes may include:
- Income taxes
- Property taxes
- Municipal taxes
Many people end up owing back taxes because they either didn’t withhold enough money from their paychecks during the year or fell behind on their property tax bills.
When you don’t pay the property taxes on your home, the unpaid amount turns into a lien. The outstanding balance accumulates interest and penalties, so the longer it remains unpaid, the more you will owe in the long run.
How do I know if I owe back taxes?
If you’re not sure whether you owe back taxes or how much you owe, you can find out relatively easily. To find information on any unpaid income taxes, you have a few different options:
- View your tax bill online at IRS.gov
- Contact the IRS by phone at 800-829-1040
- Check your mail (you likely have unpaid taxes if you’re receiving notices from the IRS)
- Go to your nearest IRS office
To confirm whether you owe property taxes, watch for mail from your city or town — as this is the most common way to be informed that you owe back taxes. Alternatively, visit your county assessor’s office or use their online portal to access your tax information.
Property taxes are matters of public record — all you need is your address to find out how much you owe. If you’re a homeowner in Massachusetts, simply search “view my property tax bill (your city or town).” For example, homeowners in the City of Boston can search for unpaid property tax bills via the official online portal here.
What happens if you don’t pay back taxes?
Not paying your taxes can result in a host of troubling consequences. Your creditors may be able to take the following actions to settle your debts.
- Legal action/lawsuits
- Seize your property and assets
- Wage garnishments (i.e., your paycheck and social security benefits)
- Impose tax liens on your home or other property
- Seize any future tax refunds
- Take money from your bank accounts
- Report to the credit bureaus (which may impact your credit score)
- Prison time (in rare cases)
Maybe you forgot to pay last year’s property taxes or haven’t paid your federal income taxes for a few years. In both cases, the federal government has the right to seize your home — however, it’s more likely they will file a tax lien on the property instead.
When there is a tax lien on your property, it means the lienholder has a legal claim to your house. This means if you sell your property, the back taxes will be paid from the sale proceeds. Selling your home may be the best option if you have no other way to repay your tax debt.
Can I sell my house if I owe back taxes?
So, how does owing back taxes on a house affect your ability to sell?
You can sell your house even if you owe back taxes, typically from the sale proceeds. However, this largely depends on the value of your home compared to how much you owe — your equity.
Let’s say your house is worth $250,000, and your mortgage balance is $100,000. This means your equity is $150,000 ($250k – $100k). Now, let’s assume it will cost you another $10,000 to settle your tax debt. That means you will have $140,000 leftover after paying off your mortgage and back taxes.
The situation gets tricky if you don’t have enough equity in your home to cover your debts when you sell it. In this case, you may need to delay selling your house until you can afford to repay your back taxes. Alternatively, you can try negotiating with the IRS to see if they will forgive some of your debt or accept less than the amount owed.
Can back taxes be paid at closing?
Again, this depends on the amount of equity you have in your house.
If you don’t receive enough from the sale proceeds to repay your back taxes, you must find another way to settle your debts. This might mean liquidating your savings or retirement accounts or borrowing money from a family member or friend.
Can the IRS take your house for unpaid taxes?
The short answer is yes — however, it is usually a last resort.
Even if the IRS starts the process, you may be able to reclaim full ownership of the house at any time by paying the tax debt — referred to as the “right of redemption.” Be aware that the costs of redeeming ownership may include added expenses such as interest and fees.
Can I sell my house with a tax lien?
Fortunately, you can still sell your house even with a tax lien on the property. Be aware that potential home buyers may be reluctant to purchase a house with a tax lien attached to it. Buying a house with tax debt is more complicated and may take longer than a typical sale — this alone may drive away many potential buyers.
We’ll pay a fair cash price for your home
If you’re a homeowner in Massachusetts wanting to sell your house (even if you owe back taxes), you can simplify the process by selling directly to a trusted, local cash home buying company. We are licensed real estate investors with experience helping homeowners out of tricky situations like this. Best of all, we’ll buy your house in any condition, so there’s no need to worry about costly repair work and there are no fees.
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