Losing Your Home By Not Paying Your Taxes
What will happen to my home if I don’t pay my income taxes? This is a question you may be asking if you’re experiencing financial difficulty. And, as it turns out, the answer is not always that simple. But don’t worry, we’re here to help.
There are, in effect, two types of “not doing” your taxes. The first is failing to file. And the second, failing to pay. Those who fail to file their taxes will have to pay a 5% penalty on the total tax that they owe (with a minimum penalty of $135). Those who fail to pay will typically have to pay interest plus a penalty.
Income Taxes And Your Home
The IRS can place a lien on your home if you fail to pay your income taxes. If the lien is placed on your home then eventually the IRS may also able to foreclose on it. This practice, though, is highly unlikely. It is far more common for the IRS to wait until you sell or refinance the home to stake their claim on the property rather than foreclosing on it themselves.
Federal Income Tax Lien
If you don’t pay your income taxes, then the IRS can put a tax lien on your home. The IRS puts liens on a property only after the following:
- They have assessed your liability
- They have sent you a notice and demands payment
- You have failed to fully pay the taxes or debt on time
- If you cannot pay your taxes in full, you have neglected to take actions to remedy the situation (e.g. an Offer in Compromise, an Installment Agreement, etc.)
The lien will amount to whatever you owe plus any penalty-fees and interest that you may have accumulated. The IRS can file what is called a “Notice of Federal Tax Lien” to make it so that your back taxes are given priority over additional debts that you may owe other creditors. In other words, when it comes to getting paid (after you sell your property, or they foreclose on it), the IRS comes first. After they get what is owed to them, if anything is left over, it goes to your other creditors, in order of priority.
As we said, once there is a federal tax lien on the home, the IRS has the option to foreclose. However, they probably won’t. The IRS would consider foreclosing only if there is enough equity in your home to pay off any superior liens (such as a mortgage) as well as cover the IRS debt. And, even then, they often won’t because 1) it’s a legal nightmare, and 2) its terrible PR for the agency.
When a lien is foreclosed on, the IRS gets 120 days to “redeem” the home by paying the amount the home was sold for at the foreclosure sale (plus interest and various other amounts). If the IRS redeems your home, then they are legally assuming ownership of it.
If live in Michigan and are struggling with criminal tax issues contact Ayar Law today at (248) 262-3400 for your free, no-obligation consultation.