How to Remove a Tax Lien from Your Property?

Unpaid tax liens can significantly impact property owners by affecting credit scores and making it difficult to sell or refinance property. In 2021, the IRS filed 212,251 Notices of Federal Tax Lien (NFTLs). To provide perspective, in 2019, the IRS filed 543,604 NFTLs.

Understanding how to remove a tax lien is vital to protecting your financial assets and maintaining a good credit rating. So, let us take a closer look at why people might face a property tax lien and figure out how to remove it.

Understanding Federal Tax Lien

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. It protects the government’s interest in your assets, including real estate, personal property, and financial assets. Here’s how it works and how you can remove it.

How Does a Federal Tax Lien Arise?

A federal tax lien arises when:

  • The IRS assesses your tax liability and puts the balance due on the books.
  • The IRS sends you a bill explaining how much you owe (Notice and Demand for Payment).
  • You neglect or refuse to pay the debt on time.

The IRS then files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

If you’re facing this challenging situation, Hopkins CPA firm can really help. Their experienced team specializes in resolving tax liens and negotiating with the IRS to find the best solution for you. Don’t face this alone—reach out to Hopkins CPA firm for expert assistance. Along with tax liens, we also offer insurance planning and retirement planning services.

How to Get Rid of a Property Tax Lien?

Removing a tax lien from your property involves specific steps and requirements. Here’s a more detailed explanation of each method to ensure you understand the process and make informed decisions.

1. Pay the Tax Debt in Full

Paying off your tax debt entirely is the most direct way to remove a tax lien.

  • Process: Obtain a payoff amount from the IRS, which includes the total tax owed, interest, and penalties. You can get this amount by contacting the IRS directly or checking your IRS online account.
  • Payment: Pay the full amount using a check, money order, or electronic payment through the IRS website.
  • Release: Once the IRS receives full payment, they will release the lien within 30 days. You will receive a Certificate of Release of Federal Tax Lien, which you should keep for your records and provide to credit reporting agencies to update your credit report.

2. Apply for a Lien Withdrawal

A lien withdrawal removes the public Notice of Federal Tax Lien, assuring creditors that the IRS no longer has a claim on your property, although you still owe the tax debt.

  • Eligibility: To be eligible, you must either pay the tax debt in full or be in a Direct Debit Installment Agreement (DDIA) and have a balance of $25,000 or less.
  • Application: Submit Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.
  • Review: The IRS will review your application and notify you of its decision. If approved, the lien will be withdrawn, and you will receive a confirmation.

3. Set Up a Payment Plan

Setting up a payment plan allows you to pay your tax debt over time, and under certain conditions, you can request a lien withdrawal.

  • Installment Agreement: An installment agreement lets you pay your debt in monthly installments. You can apply online using the IRS Online Payment Agreement tool or by submitting Form 9465.
  • Direct Debit Installment Agreement (DDIA): This is an automatic payment plan where monthly payments are debited directly from your bank account. You can request a lien withdrawal if you owe $25,000 or less and have a DDIA.
  • Application: To request a DDIA, you need to fill out Form 9465 and provide detailed financial information using Form 433-F, Collection Information Statement.

4. Discharge of Property

A discharge removes the lien from a specific property, allowing you to sell or refinance the property.

  • Eligibility: You must show that the IRS can still collect the tax debt from other sources or that the property is worth less than the lien amount.
  • Application: Submit Form 14135, Application for Certificate of Discharge of Property from Federal Tax Lien, along with documentation proving your eligibility.
  • Process: The IRS will review your application and may approve the discharge if it meets their criteria.

5. Subordination

Subordination allows other creditors to prioritize repayment ahead of the IRS, which can help you get a loan or mortgage.

  • Eligibility: You must prove that subordination is in the government’s best interest, often by showing that it will help you pay the tax debt more easily.
  • Application: Submit Form 14134, Application for Certificate of Subordination of Federal Tax Lien, with supporting documentation.
  • Review: The IRS evaluates your application and, if approved, issues a certificate of subordination.

6. Addressing IRS Errors

If the IRS places a lien in error, you can request reimbursement for bank charges and other damages.

  • Eligibility: You must prove that the IRS caused the error and that you did not contribute to the error.
  • Application: Submit Form 8546, Claim for Reimbursement of Bank Charges, with supporting documentation to the IRS.
  • Review: The IRS will review your claim and reimburse you for bank charges if they determine that the error was theirs.

Knowing your options and following the right steps can successfully remove a tax lien from your property and safeguard your finances. Besides tax lien, we also help with tax preparation for businesses, and tax preparation services in Texas and beyond to help you with other tax-related issues.

Consequences of Not Addressing a Tax Lien

  • Credit Impact: A tax lien on your property can significantly lower your credit score and remain on your credit report for up to seven years, even if paid.
  • Property Seizure: The IRS may seize and sell your property, including your home or car, to settle your tax debt.
  • Refinancing Issues: A tax lien can prevent you from refinancing your mortgage or obtaining other loans.
  • Sale Complications: Selling a property with a tax lien can be difficult, as the lien must be satisfied or resolved before the sale can proceed.

These consequences may seem easy to eliminate, but the process can take much time and effort. If you need help, Hopkins CPA Firm has in-house experts to treat your property lien issue.

Summing up

Removing a tax lien from your property protects your financial health and credit score. You can effectively address the issue by understanding the process and taking timely action. Whether it’s paying off your debt, applying for a discharge or subordination, or requesting a withdrawal, several methods are available to resolve a tax lien.

Take proactive steps to handle your tax debts. If needed, seek professional assistance to ensure you get the best possible outcome.

If you need assistance with unfiled tax returns, an offer in compromise with the IRS, or innocent spouse relief with the IRS, our expert tax preparer can help. Get in touch.

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Joe Hopkins

Joe has 25+ years as a Certified Public Accountant licensed in the State of Texas and solving IRS problems. Current member with the American Institute of Certified Public Accountants (AICPA), Texas Society of CPA’s (TSCPA), National Society of Accountants (NSA), Bachelor’s degree in accounting (BBA), Master’s degree in Business Administration (MBA) at Texas A&M Corpus Christi. Experience in a variety of industries as Controller, CFO and tax resolution issues for both business and personal tax cases.