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A tax lien is an official declaration that the IRS has a legal right to the property because of your federal tax debt. It occurs after you have neglected to pay your tax debt by the deadline. A lien does not involve actually seizing the property; instead, it only secures the interest in the property and signifies that the federal government has a priority over any other creditors.
A tax levy, on the other hand, is the actual taking of your property. A tax lien affects you by being attached to any and all assets, including future assets you may acquire during the life of the lien. It also can affect your credit and limit your ability to sell or refinance any of your assets until you have repaid your debt.
Facing a tax lien can significantly jeopardize your assets, credit score, and financial future. But we don’t want that to happen. That’s why, with Amity One’s tax experts by your side, you’ll be equipped with the knowledge, tools, and tailored solutions to tackle these challenges seamlessly.
Tax liens require action immediately. The easiest way to remove a tax lien is to repay your tax debt in full. Your lien will be discharged within 30 days of your payment being processed.
However, most people who owe a significant amount of tax debt cannot afford such a large payment. You have the right to appeal the process if you believe that the amount you owe is incorrect. You also have other options for removing the lien and settling your tax debt.
For example, you can apply for a discharge of property, which removes your lien from a specific property. You can also apply for subordination, which will allow other creditors priority over the IRS, which may help you secure a loan or mortgage. You can also apply for a withdrawal of the tax lien. Even if the tax lien is removed, you will still be liable for the full amount of federal tax debt unless you take other actions.
Another option for removing a federal lien on your assets is by applying for an Installment Agreement or an Offer in Compromise. These are two tax solutions that can help you to negotiate a way to pay back your federal tax debt without entering a financial hardship or harming your credit.
A tax lien is a legal claim by the Internal Revenue Service (IRS) against a taxpayer’s property when they fail to pay their tax debt. It signifies the IRS’s legal right to the property and ensures they have priority over other creditors.
This differs from a tax levy, which is the actual seizure of the property to settle the debt. While both are mechanisms used by the IRS to ensure tax debts are paid, a tax lien only secures the government’s interest in the property, whereas a tax levy involves the actual taking of the property.
A tax lien can have significant repercussions. Firstly, it can be attached to any property you own, including real or personal property, and even future assets acquired during the lien’s duration. This can limit your ability to sell or refinance assets.
Moreover, a tax lien can severely impact your credit report, making it challenging to secure loans or other forms of credit. It’s a public record, signaling to other creditors the government’s legal right to your property due to unpaid taxes.
Tax lien investing involves purchasing tax lien certificates from local governments. When property owners fail to pay their property taxes, the local government can place a lien on the property. To recoup the unpaid taxes, they sell tax lien certificates to private investors, including individual investors and institutional entities like hedge funds.
The winning bidder at a public auction pays the delinquent taxes and, in return, receives the tax lien certificate, which entitles them to the unpaid amount plus interest. This form of investing can offer a generous return.
Still, it also requires due diligence as there are risks involved, such as the potential for the property to have other liens or environmental damage.
Addressing a tax lien promptly is crucial. The most straightforward way is to pay the tax debt in full, after which the IRS will discharge the lien within 30 days. However, other options exist if paying the entire debt isn’t feasible.
You can appeal the lien amount if you believe it’s incorrect, apply for a discharge of property to remove the lien from a specific property, or seek subordination to allow other creditors priority over the IRS.
Additionally, you can negotiate with the IRS for an Installment Agreement or an Offer in Compromise, which can provide ways to settle your tax debt without causing financial hardship.
Yes, tax liens can significantly impact the sale or refinancing of your property. When a tax lien is attached to a property, it becomes a part of the public record. This means potential buyers or financial institutions can see that the government has a legal claim on the property due to unpaid taxes.
As a result, selling a property with an active tax lien can be challenging, and buyers might negotiate for a lower price. Similarly, refinancing can become difficult as many lenders view tax liens as high-risk. It’s often recommended to resolve any tax liens before attempting to sell or refinance.
