Selling a house with a tax lien can prove challenging even for the most experienced realtors. Fortunately, selling a San Diego house with a federal tax lien is possible, provided that it meets a specific criterion: the amount of equity in the home has to be less than the amount of the federal tax lien the government has imposed on your property. If you’re in this kind of situation, you may be able to sell your San Diego home by obtaining a federal tax lien certificate of discharge.
The only downside to this method is that delays, setbacks, and slow progress are common whenever the government is involved in processing a document such as a certificate of discharge. Additionally, you need to coordinate with the Internal Revenue Service (IRS), which involves citing specific code provisions that will help you sell your San Diego house despite having a federal tax lien on it.
Unsurprisingly, understanding these codes may require the additional services of an attorney, so it would be a wise decision to hire one so you can be sure you’re doing the right thing within the limits of the law. Moreover, an attorney will help you understand complex legal language, which will always be to your advantage.
There are two Internal Revenue Codes that can help you get a federal tax lien certificate of discharge. While you may have an attorney to help you out, understanding the basic principles of these two provisions can help you outline your expectations more clearly.
Provision #1: IRC § 6325(b)(2)(A)
Under Internal Revenue Code § 6325(b)(2)(A), you might be granted a certificate of discharge when you’ve managed to fulfill partial payment for the federal tax lien but in an amount that doesn’t exceed the interest exacted by the federal government. Simply put, as long as the government receives payment equivalent to the interest imposed on the house, you will be able to sell your San Diego house despite the federal tax lien.
To illustrate, an example scenario would be a federal tax lien to the tune of $200,000 with the following conditions:
- $205,000: Amount at which property will be sold
- $125,000: Amount to be paid off for first mortgage
- $5,000: Acceptable settlement cost
- $55,000: IRS lien interest, which is partial payment for the tax lien
- $135,000: Amount that remains a tax debt
At $135,000, the lien stays in place, but your San Diego home can now be sold provided that you pay the $55,000 interest to the federal government.
Provision #2: IRC § 6325(b)(2)(B)
For Internal Revenue Code § 6325(b)(2)(B), you can get a certificate of discharge if the government decides the interest they would get from your property is of little to no value. In this scenario, debts that came before the federal tax lien have a higher value than what can be gleaned from the potential sale of the property.
For instance, $90,000 is the amount of the federal tax lien with the following conditions:
- $180,000: Amount at which property will be sold
- $165,000: Amount to be paid off for first mortgage
- $5,000: Acceptable settlement cost
- $0: Value of IRS lien interest
Basically, after the IRS has finished reviewing your San Diego home, it has concluded that the interest has no actual value and the property would have no other equitable interest. Your San Diego home can be sold in this case, but the lien will be transferred from the house and placed on anything you own that’s actually of significant value. With this arraignment, you, the homeowner, can still sell the home, while the government will still be able to collect on their lien.
Seek Professional Assistance
Aside from an attorney, consider working with a tax professional so you can be sure to take advantage of these two provisions when you’re selling a San Diego house with a federal tax lien. With these two professionals on your side, you’ll have an easier time properly navigating the law and selling your home despite the tax lien. Also if you need more help to sell my house fast San Diego, I Buy SD has a solution for you and your family.