Can a property be seized if you owe back tax to the IRS?

by Mounica Kota | Oct 12, 2020 | IRS, owe taxes, property tax, tax filing, Tax Payers, Taxtips

Can a property be seized if you owe back tax to the IRS?

“Can the IRS seize my property if I owe taxes?” This is properly the first question every person who owes tax to the IRS enquires. The mere thought of losing their most valuable asset can create a sense of terror and fear in the minds of taxpayers who might have taxes due to the IRS. However, this might depend on why you owe taxes to the IRS, how much tax you owe, and your financial circumstances.

The IRS has the authority to seize the property of a taxpayer if the taxpayer has been neglecting or avoiding payment of taxes to the IRS. This process is otherwise known as Tax Levy. By Tax Levy, the IRS has the legal authority to seize a taxpayer’s property which might include a real estate for the settlement of taxes for which there have been several notices sent to the taxpayer.

When will the IRS seize your property?

Seizure of your property is the last method which the IRS might follow for the settlement of the back taxes.
Before the seizure of your assets, the IRS would take the below-mentioned steps for the tax settlement: –

The IRS would assess your outstanding tax and would issue a notice to you which would be demanding for the payment of the taxes.
If you have neglected the notice sent to you by the IRS, then
You will be sent a final notice of intent to levy and also a notice of your right to have a hearing before 30 days of the implementation of the tax levy.

If the IRS decides to take your property

The IRS would calculate and provide you with the minimum bid price of your property.
If necessary, you can challenge the price laid off by the IRS and state the fair market price of your property.
The IRS would issue a notice and make the announcement for sale of the property.
After the announcement, the IRS waits for 10 days before your property is sold off.
The entire amount obtained from the sale of the property would be used to recover the expenses incurred in the property seizure, selling of the property, and payoff of your tax debts.
You will obtain a refund if any amount is left out after the sale is over and if any excess money is left out.

Will the IRS visit your home?

The IRS representative can visit you for tax-related discussion only in circumstances such as

You owe taxes to the IRS and there is a need for a discussion.
There is an audit process
If there is a criminal investigation needed

However, there has been an increase in the fake IRS visits and tax scams lately which urges the taxpayers to be aware of their rights. You have the right to verify whether the IRS representative is authorized or not by asking for their credentials.

What are the other properties which the IRS can seize?

By a tax levy, the IRS can be able to seize the below-mentioned properties.

Real estate
Your vehicle
Wages by Wage Garnishment
A levy can be put up on your bank account
Investments and collectibles

Can you get back your seized property?

In case, you want to get back your seized property you would have to take some immediate action for resolving the tax debt. You must get in touch with the IRS to request a release of your seized property. Moreover, help from a tax professional would help you in the expedition of the process. In case the IRS would not approve your request for the release of the seizure, you can have an opportunity to appeal against it.

There are certain circumstances in which the IRS would have to undo the seizure of your property.

Your seizure can be released if you have fulfilled your tax liabilities.
If the tax collection period got completed before the seizure of your property was done.
If you have enrolled in an installment agreement program and the agreement does not allow the seizure of property.
If by the release of your property, you would be able to cover your tax balance.
If by the seizure of your property, you would be facing some economic hardships and would not be able to avail of the necessities of life.
If the value of the property seized by the IRS would exceed the tax owed and the release of the property would not prevent the IRS from the tax collection.

Protection of your assets from the IRS

If you want to avoid any kind of trouble with the IRS, then you must be careful about the rules. Either paying of your taxes or responding to the IRS notice, everything must be done on time and carefully.

Some of the basic steps by which you can take to prevent a tax levy are:-

Find out methods by which you can utilize your finances to cover up your tax debts.
In case you are not able to pay off your entire tax debt in full, then you can enter into an installment agreement.
You can check with the IRS if it is feasible to classify your taxes as uncollectible.
You can also try to request the IRS for an offer in compromise.

Conclusion

As a US taxpayer, you must fulfill your civil responsibilities on time. Ignoring or neglecting the notices or communication obtained from the IRS can lead to serious consequences. So, you must abide by the laws, regulations and must take matters related to the IRS quite seriously.

Tax implication for home-buyers in the US

by Mounica Kota | Aug 27, 2020 | property tax, Tax benefits, Tax Deduction, Tax implications

Tax implication for home-buyers in the US

More and more Americans are now looking for purchase of vacation homes, rental income properties, and comfortable places to settle down after retirement. US Tax laws governing the ownership of property are quite complex and have different tax implication for both residents and non-residents.

Tax benefits of homeownership in the US

The main tax benefit of owning a house in the US is that the homeowners do not need to pay taxes on the imputed rental income from their own homes.
Homeowners will not have to count the rental value of their homes as taxable income even though that value is just a return on investment such as that of stock dividends or interest on a savings account. So, the rental value of homes is a form of income that is non-taxable.
Homeowners are allowed to deduct mortgage interest, property tax payments, and other expenses from their federal income tax if they are itemizing their deductions.
According to the tax rules, in a well –functioning Income tax system there must be deductions made for mortgage interest and property taxes. But, the current Federal Income tax system does not tax the imputed rental income.
Furthermore, homeowners can also exclude up to a certain limit the capital gain which they realize from the sale of their home.
Both residents and non-residents in the country must pay taxes on any property which has been generated by renting a property that is located in the US and also by any gain realized from the sale of the property.

Imputed Rent

In the US, a landlord can count the rent received as income whereas the renters may not deduct the rent which they are paying. A homeowner can be considered as both the landlord and the renter. However, the tax code of the country would treat the homeowners in the same way as the renters by ignoring their simultaneous role as their landlords.

Deduction of mortgage interest

Those homeowners who are itemizing their deductions may reduce their taxable income by deduction of the interest that has been paid on the mortgage of their home. Those taxpayers who do not have their own homes will not have the ability to make any deductions for the interest paid on the debt incurred in the purchase of goods and services.

However, there have been certain changes introduced by the TCJA (Tax Cuts and Jobs Act). Before the changes introduced by the TCJA, the deduction was limited to the interest paid up to $1 million of debt which has been incurred either to purchase or substantially rehabilitate a house. Homeowners can also make a deduction on the interest that is paid up to $100,000 of home equity debt regardless of how the borrowed funds have been used. The TCJA has also limited the deduction to interest on up to$750,000 of the mortgage debt which has been incurred after 14^th December 2017 to either buy or improve a first or second home.

Deduction of property tax

Homeowners who can itemize their deductions may also have to reduce their taxable income by deduction of property taxes which they pay on their homes. This deduction can be said to be a transfer of federal funds to the jurisdiction which imposes a property tax and allowing them to raise the property tax revenue a lower cost to its constituents.

Profit from home sales

Usually, taxpayers who sell assets must pay capital gains tax on any profit which is made out of the sale. But, homeowners might exclude from the taxable income up to $2, 50,000 of capital gains on the sale of their homes. This is feasible when certain criteria i.e. the homeowners must have maintained their home as a principal residence for two years out of the five preceding years and may not have claimed the capital gain exclusion for the sale of the other home during the previous two years.

Effect of deductions and exclusions

These benefits are more useful for those taxpayers who are in the higher-income tax brackets rather than to those who are in the lower-income tax bracket. The difference in the tax impact results due to three main factors: compared with lower-income homeowners, those with higher incomes face higher marginal tax rates, typically pay more mortgage interest and property tax, and are more likely to itemize deductions on their tax returns.

Conclusion

So, if you are a house owner or are planning to buy a house in the US these tax implications would be of great help to you in understanding the details related to the tax system.