Today TaxMama hears from Monica in California with a problem. “My husband and I would like to buy our first home, since the local housing prices are currently at rock bottom. However, we owe approximately $20,000 between the IRS and Franchise Tax Board. We pay $200 a month to FTB and $300 a month to the IRS. We have never been delinquent on our payment agreements. Is it possible to get a home loan? Or will the IRS automatically put a lien on any home we try to buy?”
That’s a tough place to be. Basically, if you have enough money to make a down payment on a home, IRS and/or the Franchise Tax Board will want that money. So you won’t be able to use it for the down payment.
When you apply for credit to get the mortgage, the lender will see the IRS lien on your credit. (If you’re on an installment agreement, chances are, there is a tax lien out there. Maybe not…) The lender won’t issue the loan until the tax debts are paid. Especially if there are liens.
If you have no tax liens out there, and your credit is good, you just might be able to buy that home. Then, keep up the monthly tax payments as you’ve been doing – and the IRS and FTB will have no reason to put a lien on your credit.
Note: Income tax liens are not specifically placed on real estate or assets. They are general liens against YOU. So anytime you try to buy or sell something, they show up on your credit to alert lenders, sellers, etc. So, it’s as if the lien were placed on your home.
Now, if there is a lien out there already, you might be able to get IRS or FTB to release the lien temporarily to allow you to buy the house – if you are putting little or no money down.
What would IRS get out of this? Well, your $8,000 first time homebuyers credit, of course. That would make a big dent in your debt. http://www.irs.gov/newsroom/article/0,,id=187935,00.html
Also, if you happen to be buying a brand new home – California will give you $10,000 split over 3 years. They will be able to grab that towards clearing your debt with the FTB.
To find a brand new home, check with Hometown America to see if they have a new community near you. http://hometownamerica.com/
You can use this information to persuade the tax authorities that they have some incentive to release those liens against you long enough to make the purchase.
And remember, you can find answers to all kinds of questions about tax liens and other tax issues, free. Where? Where else? At TaxMama.com
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- IRS FAQs :: First Time Homebuyer Credit
- California Franchise Tax Board :: Homebuyers Credit information
- HometownAmerica.com :: New (and lived in) housing communities around the USA