You can sell a house with an IRS federal tax lien, but the lien has to be handled so the buyer gets clear title. The realistic paths are paying the lien from proceeds at closing, asking the IRS for a discharge or subordination, holding funds in escrow or posting a bond, or selling to a cash buyer who manages the payoffs. The IRS controls each release.
TL;DR:
- A title report identifies the recorded federal tax lien, senior liens, and available equity; mortgages and closing costs are paid before the IRS receives remaining proceeds.
- Submit Form 14135 at least 45 days before closing, with a title report, purchase contract, valuation when required, and proposed settlement statement.
- A discharge removes the lien from the property; subordination changes creditor priority, while withdrawal removes public notice without erasing the tax debt.
- If senior claims exceed the property’s value, a short sale discharge may work when the IRS’s interest has no value; escrow can hold proceeds while claims are resolved.
- Ignoring the lien can trigger an IRS forced sale, with a minimum bid typically at least 80% of value after senior liens.
Table of Contents
- Which lien do you have, and why does priority matter?
- How are sale proceeds applied at closing?
- Which IRS relief options let a sale close?
- How do you apply for a discharge and time the closing?
- What if the sale won't cover the lien?
- Our take: fix it before you list, or sell on your terms
- Selling to ExitVest: a cash option when the clock is running
- FAQ
- Sources
Which lien do you have, and why does priority matter?
Before you list the house, find out exactly which lien is attached to it. A Notice of Federal Tax Lien (NFTL) is a public record that alerts creditors and buyers to the government's interest in your property. Title companies can identify it during a title search, so a buyer's lender may learn about it before closing.
The three liens people confuse behave differently:
- Federal tax lien: Created under federal law, attached to all your property and rights to property, and recorded through the NFTL. It stays until it is paid, discharged, or released.
- State tax lien: Filed by your state's revenue agency, with its own rules, priority and release process. A state lien is not resolved by an IRS discharge.
- Property tax lien: Tied to the parcel itself for unpaid local taxes. These often take priority over mortgages and can lead to a tax sale if ignored.
Priority decides who gets paid first. Mortgages and other senior liens recorded before the NFTL are generally paid ahead of the IRS. The federal lien then reaches whatever equity is left. If your sale price covers the senior debts, closing costs and the IRS balance, everyone is paid and the lien is released. If it does not, you need one of the relief options covered below.
The IRS also separates a lien from a levy. A lien is a security interest in your property. A levy is the actual seizure and sale of it. Acting early on discharge or subordination is how you avoid the second.
Start with a title report or a copy of the recorded NFTL. It shows the filing date, the amount, and every other claim on the property. Without it, you are guessing at your equity. If you want to see how other encumbrances stack up, our guide on selling a house with a judgment walks through payoffs at closing.
How are sale proceeds applied at closing?
At closing, the settlement agent works down a payoff order. Senior secured debts, usually the mortgage, come first. Settlement and closing costs follow. Whatever remains is where the federal tax lien attaches, because the lien follows the money into the sale proceeds. The IRS notes that it can be difficult to enforce against cash proceeds in practice, which is exactly why title companies insist on a formal discharge or a payoff before they will close.
Here is a simple illustration of the flow, not market data. The sale proceeds first cover senior debts and closing costs. The IRS lien is then paid from the remaining proceeds, and any surplus goes to you. If the remaining proceeds are insufficient to cover the lien, they may go toward the debt, and you may still owe a balance.
The IRS uses the same logic when it sells property itself. In a forced sale, proceeds cover levy and sale expenses first, then the tax bill, with any surplus returned to you unless a senior lienholder claims it.
When the lien is paid in full, the IRS must issue a certificate of release within 30 calendar days under IRC 6325(a).
Ownership matters too. Joint ownership, tenancy by the entirety, and estates can change how proceeds are divided, because the lien may attach only to the liable person's interest. If the owner has died, the IRS tells executors to contact the Lien Unit for payoff information, as described in its guidance on selling a deceased person's real property.
Which IRS relief options let a sale close?
When equity is thin or the buyer's lender wants a clean file, the IRS has several mechanisms. Publication 783 explains the discharge categories under IRC 6325(b), and the IRM's lien certificate guidance separates discharge, subordination and non-attachment.
- Discharge, (b)(1): The taxpayer’s remaining property subject to the lien must meet the statutory value test described in Publication 783.
- Discharge, (b)(2)(A): The IRS receives an amount not less than the value of its interest in the property being discharged.
- Discharge, (b)(2)(B): The IRS’s interest in the property to be discharged has no value.
- Discharge, (b)(3): The IRS's interest transfers to the sale proceeds, which are held in escrow under an agreement while claims are sorted out.
- Discharge, (b)(4): You post an acceptable bond or deposit that covers the IRS's interest.
- Subordination: The IRS agrees to move behind another creditor, usually a new lender, so financing can proceed. The lien remains, only lower in line.
- Non-attachment and withdrawal: Non-attachment confirms the lien does not attach to specific property. Withdrawal removes the public notice but does not erase the debt.
A discharge removes the effect of the NFTL from the named property. The Taxpayer Advocate Service notes that the IRS communicates its determination by letter and expects you to meet its evidence and timing requirements.
Expect to pay something. Most discharge routes require a payment, an escrowed fund, or a bond, and the IRS will want a complete title report and a proposed closing statement with the application. Decisions take time, so build the request into your contract timeline.
Pro Tip: Ask your title company to run a payoff estimate before you sign a purchase contract, so you know which discharge category fits your numbers.
How do you apply for a discharge and time the closing?
The application goes on Form 14135, and the instructions list what must accompany it. Work through it in order:
- Get a copy of the recorded NFTL and a current title report listing every senior lien.
- Gather the deed and the signed purchase agreement or contract.
- Add an appraisal or other valuation if the discharge category calls for one.
- Prepare the proposed closing statement showing every payoff and the amount going to the IRS.
- If you are using escrow, draft the escrow agreement. The IRS treats it as essential for (b)(3) requests.
- Complete Form 14135, attach everything, and send it to the address in the instructions.
- Respond quickly to any IRS request for more information, and keep your title company copied.
Timing is where sales fall apart. Publication 783 says to submit the application at least 45 days before the sale. Plan the request accordingly. The IRS responds with a conditional commitment or a determination letter, and you then satisfy its conditions, usually a payment at closing, before the certificate is issued.
Coordinate three people from day one: your buyer's title company, your revenue officer if you have one, and the IRS office named in the publication. Publication 4235 cross-references where to send requests and how escrow agreements are prepared.
Pro Tip: Put a closing extension clause in your purchase contract. A buyer who knows a discharge is pending is far more patient than one who finds out two weeks before the date.
What if the sale won't cover the lien?
Thin equity does not end your options, but it narrows them.
- Short sale discharge: Under (b)(2)(B), you show that senior liens exceed the property's value, so the IRS's interest has no value. You document this with the title report, valuation and closing statement.
- Escrowed proceeds: Under (b)(3), proceeds are held in a fund subject to the same liens and claims, in the same priority order the property had. The sale closes and the dispute moves to the money.
- Bankruptcy: In some cases bankruptcy lets a property sell free and clear. It carries heavy consequences, so talk to a bankruptcy attorney before relying on it.
- Doing nothing: Unpaid tax debt can end in a levy and forced sale. The IRS sets a minimum bid, typically 80% or more of forced sale value after senior liens, which can still leave you worse off than a negotiated sale.
- Cash buyer: A buyer paying cash for the property as-is can close without lender conditions, and the payoff is coordinated at the table. The trade-off is a price below retail, in exchange for speed and certainty. Our article on title issues in cash sales explains what that process looks like.
Older owners with a reverse mortgage face a separate set of tax-related risks, covered in this partner explainer on reverse mortgages and delinquent taxes.
Our take: fix it before you list, or sell on your terms
Most homeowners should start by getting a title report and payoff figures, then running the numbers: does the price cover the senior liens, closing costs and the IRS balance? If it does, the lien is just another line on the settlement statement. If it does not, apply for a discharge or plan an escrow or bond before you are under contract.
My view is that people wait too long to call the IRS. A lien that is addressed early is a paperwork problem. A lien that is ignored becomes a levy problem. When speed or certainty is the priority, or the discharge timeline will not fit, a cash sale is often the cleanest way out, and it should be weighed against the discount it carries. We buy distressed and liened properties, so we see how these deals break and how they close.
— Alek
Selling to ExitVest: a cash option when the clock is running
When a discharge timeline is too slow or the equity is too tight, we offer a different route to the same goal. ExitVest buys houses, small apartment buildings and land for cash, as-is, so you do not have to repair, stage or list anything.
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- As-is purchases: We can work with properties that carry liens or title problems.
- No commissions or agent fees: What we offer is what we pay.
- Flexible closing dates: You pick a timeline that fits your situation.
- Payoff coordination: We work with the title company so lien payoffs are handled at closing.
We do not promise that every lien situation can close, since the numbers have to work. What we can do is review your title report and tell you plainly whether a cash sale fits. If foreclosure is also in the picture, our Cash Offer Program is built for urgent timelines. Ready to see your options? Request a cash offer from ExitVest and we will walk through your equity and timeline with you.
FAQ
Can I sell my house if I owe the IRS?
Yes. A federal tax lien does not stop a sale, but it must be addressed so the buyer receives clear title. When there is enough equity, the lien is usually paid from proceeds at closing, as IRS guidance explains.
How do I get an IRS lien removed from my property?
Paying the debt in full leads to a release, which the IRS must issue within 30 calendar days after the liability is satisfied. If you are selling and cannot pay in full beforehand, you can apply for a discharge of the property using Form 14135.
What happens when the IRS puts a lien on property?
The lien attaches to your property and rights to property, and the public NFTL warns buyers and creditors. It does not seize anything by itself. A levy is the separate step where the IRS actually takes and sells property.
Can you buy a house if the IRS has a lien on you?
A lien can complicate financing, since lenders see the NFTL and may require it to be resolved or subordinated first. Buying is not automatically barred, but expect the lender to ask how the lien will be handled.
Sources
- What if there is a federal tax lien on my home? | Internal Revenue Service
- Selling your property | Internal Revenue Service