Understanding Property Tax Liens

Understanding Property Tax Liens

Did you know that if you ever deal with an IRS lien they will release the lien within 30 days after you have paid them? No one wants to deal with a tax lien but if you are currently in this situation and are a bit confused about it we have put together these tax facts to help you understand.

Keep reading to learn what tax liens are and how to get rid of them.

What Is a Tax Lien?

First, let’s clear up what tax liens are. This is a legal claim that the IRS places against your property when you fail to pay a tax debt. They can place it on your personal property, your financial assets, or against your real estate property.

With the lien in place, the IRS prevents you from selling that property and keeping the money and they can also seize the property if you choose to not pay them back. You can think of the lien as collateral. If you are in the New Jersey area and want to sell your property that has a tax lien, you can read more on this subject to see what you can do to avoid losing your property.

Tax Levy vs Tax Lien

Sometimes levy and lien are used interchangeably but a levy and a lien are not the same. A levy takes the property to pay the tax debt owed while a lien secures the property as collateral in case you do not pay your debt. This is why you want to make sure you make arrangements to settle the debt if you can’t pay it all at once.

Tax Lien Filed in Error

What if you are in a situation where you received a lien and you are at zero fault? Yes, this can happen because the tax collection process is not perfect. If this is you right now, you have the right to file an appeal with the IRS or with your state revenue agency.

You will then have a hearing to determine if the tax debt in question belongs to you or not. Once they see that this debt is not yours then they have to release the lien. Keep in mind that this does not automatically remove the lien from your credit report, you will have to contact each credit bureau and submit proof that the lien was removed.

Resolving a Lien

The easiest way to remove a lien is to pay the IRS what you owe them. You also have the right to request a withdrawal of the lien. This will remove the public notice from your own tax record but you will still be responsible for the debt that you owe.

The withdrawal is helpful in a situation where you are eligible to repay the debt through an Installment Agreement. Whenever you resolve your liens from a tax or IRS standpoint you have to contact the credit bureaus to remove them from your credit history.

If you don’t, the lien can appear unpaid on your credit history for years or it can appear as paid for around seven years. First, you will have to contact the federal department or the county department that issues the lien and ask them to give you a release form. Next, you will submit this release form to each credit bureau to remove the lien from your credit history.

Can a Tax Lien Affect Your Business?

If you own a business having a tax lien on your record can impact your business in a few different ways. You run the risk of losing your assets or property if the IRS chooses to move forward with a levy. If a levy ends up going through, you will not be able to recoup the losses from your investments in either real estate or equipment.

You also will damage your business credit and personal credit because a tax lien is treated like unpaid debt when it comes to credit reporting. The longer it shows up as unpaid on your credit history the lower your credit score will be. This will, in turn, make it more difficult to get approved in the future for a line of credit or for personal or term loans.

It can also affect the future sale of your business. Even if the IRS approves to sell your business, as long as the debt will be satisfied during the sale transaction, the person interested in buying your business might have a difficult time finding a lender. Lenders will more than likely make it difficult when there is a lien in place because the loan will be riskier.

Does the IRS Let People Know?

Thankfully, the IRS does not simply place a lien without first communicating with you. They will send out a letter that is called a Notice and Demand for Payment telling you how much money you owe them and what will happen if you do not pay it.

Whatever you do – DO NOT IGNORE this letter. At this point, you have time to avoid having a lien placed against you. If you do not answer or pay them then they will file a Notice of Federal Tax Lien.

Feeling Like a Tax Facts Pro?

We hope that now that you know the tax facts above and understand a little more about what are tax liens, you can make informed decisions to avoid losing what you have worked so hard to attain.

Did this article come in handy? Please keep browsing the rest of this section for some more life tips and tricks.