According to IRS.gov, if there’s a federal tax lien on your home, you must satisfy the lien before you can sell or refinance your home. There are several options to satisfy the tax lien. Until a few years ago, the IRS could impose a tax lien on an individual’s property, assets, or bank accounts for a debt as small as $5,000. That changed in 2011, however, when the agency announced that, because of inflationary pressures and the struggling economy, it raised the limit to $10,000. If you owe less than this amount, the IRS will be willing to work out an overdue tax installment-payment plan with your tax attorney, but it’s not as if they’re going to forgive the debt: you still have to pay your taxes, or risk significant penalties—including jail time. At the same time as it increased its threshold for tax liens, the IRS instituted another policy that works to the taxpayers’ benefit. If you owe more than $10,000 in back taxes, for example, and are faced with a lien on your house, you can formally ask the IRS to withdraw the lien once your bill has been paid in full. The IRS will then erase any mention of the lien from its public records. Your credit score will no longer be affected by the lien. A lien will commonly reduce your credit score by hundreds of points. Once credit agencies discover the tax debt you owe to the IRS, they will consider a lien a significant red flag. To guarantee the lien is removed from your credit reports, you must actively file for an IRS withdrawal. Paying your debt without pursuing the matter further will allow the lien to remain on your credit reports up to seven years, even after it has been paid in full. Normally, if you have equity in your property, the tax lien is paid, in part or in whole, depending on the equity, out of the sales proceeds at the time of closing. If the home is being sold for less than the lien amount, the taxpayer can request the IRS
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