Can You Sell a House With Back Taxes Owed? 5 Options to Weigh
Have you inherited a property with back taxes attached as a lien? Or accumulated unpaid property taxes due to recent financial struggles? Perhaps you’re dealing with an investment property facing tax debt, or a second home with overdue taxes. Regardless of the situation, you might be asking: Can I sell a house with back taxes owed?
Greg Clark, a top real estate agent in Waco, Texas, gives us a scenario: “I had a listing where there was about $75,000 in back taxes on the property,” Clark says. “That’s problematic if there’s not enough equity, but there happened to be enough equity in the house that we could pay it out of proceeds.”
While unpaid taxes will add an additional layer of complexity to the sale, real estate agents and attorneys encounter this situation more often than you might realize — and they have the solutions to help. If you’re worried that back taxes might hinder your sale, you do have options.
We’ve put together this thorough guide to selling a house with back taxes.
What are back taxes?
Taxes fall into three basic categories, according to the Tax Foundation, the nation’s leading independent tax policy nonprofit organization. These include:
Taxes on what you earn, such as individual or personal income tax based on salaries, wages, and investments
Taxes on what you own, such as property taxes, which are also called real estate tax or “real” property tax
Taxes on what you buy, such as sales tax, which provides revenue to states and municipalities based on items you purchase at a set rate
Any one of these types of taxes becomes a “back tax” when it goes unpaid and becomes past-due. According to Jeffrey L. Nogee — a New York City-based attorney with offices on Long Island — unpaid income taxes and unpaid municipal property taxes can create liens that attach to your property. These liens can affect your ability to sell the property or may require resolution before a sale can proceed.
Income taxes: Federal, state, and municipal
If you neglect or fail to pay your federal income tax debt, the Internal Revenue Service (IRS) can make a legal claim against your property called a Federal Tax Lien that alerts creditors the IRS has a legal right to your property.
In addition to federal income tax, 43 states levy income taxes. Those that have no state income tax are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. Your state can place a lien on your property for unpaid state income tax, as can some municipalities that also levy income tax. New York City and Yonkers, for instance, have their own income tax on top of the state’s income tax.
