What Is a Tax Lien?

Tax Liens: How to Find Out If You Have a Tax Lien and How to Remove Them

When you owe back taxes, the IRS may issue a tax lien against you. If you’ve received a letter threatening a tax lien, you may be wondering what that means. Similarly, if the IRS has sent you a Notice of Tax Lien, you’re probably wondering what you should do. Here’s what you need to know.

What is a Tax Lien or Notice of Federal Tax Lien?

A tax lien is a legal claim to your assets that the IRS issues when you owe back taxes. Once the IRS files a notice of federal tax lien, this lien attaches itself to just about all of your assets. A tax lien gives the IRS the right to this property, and if you try to sell any of the property, the IRS has the authority to take the money, or its cut to pay the back taxes owed plus interest and penalties.

A tax lien is similar to when you buy a home with a mortgage — the bank has a lien on your property, and if you don’t repay your loan, the bank has a right to take your home. Similarly, if you sell your home when you have the lien in place, you don’t get to pocket the money from the sale. First, you have to pay the mortgage holder. A federal tax lien works the same way. 

Assets Affected by Federal Tax Liens

A federal tax lien will attach to all of your assets as well as future assets that are acquired while the lien is in place. The notice of federal tax lien keeps the wording vague to ensure that the lien covers anything that can be of value that you own. There is no complete list published of what the lien can include, but below are some common assets covered by the lien.

• Homes (residences, vacation homes, rental homes)

• Future homes purchased while the lien is active

• Cars, trucks, motorcycles, & any other mode of transportation

• Investment income (including rental income, annuities & more)

• Jewelry and other personal effects that have value

• Accounts receivable

• Stocks, bonds, mutual funds & any other type of security

Can You Sell Your House With an IRS Tax Lien?

If there is a lien against your home, the lien will show up when the buyer does a title search. The lien doesn’t mean that you can’t sell your home, but it means that the IRS has a right to the proceeds.

If you have a mortgage on the home, the mortgage lender has first “dibs” on the money from the sale. Once they have been paid, the IRS is second in line. Depending on how much you sell the home for and how much you owe, you may end up with nothing. If the sale of your home doesn’t cover your full tax bill, you may even still owe back taxes after you sell your home.