You owe the IRS. They filed a federal tax lien on your property. And now you need to sell your house. The lien is sitting there in the public records at the county Register of Deeds, attached to your name and your property, and you're not sure if you can sell, how to sell, or whether the IRS is going to take everything when you do.
Take a breath. You can sell. But the IRS gets involved in the process, and understanding how that works is the difference between a closing that goes smoothly and one that falls apart.
I've bought properties with IRS liens in Raleigh, Charlotte, and Durham. The process requires extra steps, additional time, and specific IRS forms that most buyers — and even some real estate attorneys — aren't familiar with. Here's what you need to know.
What an IRS Tax Lien Actually Is
When you owe federal taxes and don't pay, the IRS can file a Notice of Federal Tax Lien (NFTL) in the public records. In North Carolina, this gets recorded at the county Register of Deeds where your property is located and with the NC Secretary of State's office.
The lien attaches to all of your property — not just real estate. Bank accounts, vehicles, business assets, everything you own. But for home sellers, the real estate lien is the one that matters because it shows up in the title search and must be addressed before a clean deed can transfer.
A federal tax lien is different from other liens in several important ways:
- Priority. A federal tax lien is junior to an existing mortgage (the mortgage was recorded first), but senior to most other subsequent liens. At closing, the mortgage gets paid first, then the IRS lien, then other liens in recording order.
- Release vs. discharge. The IRS can "release" the lien (removing it entirely, usually after you pay in full) or "discharge" the lien from specific property (allowing that property to be sold while the lien remains on your other assets). These are different actions with different applications.
- The 120-day right of redemption. The IRS has 120 days after a sale to purchase the property from the buyer at the sale price. This rarely happens, but it's a real legal right that makes some buyers nervous.
Can You Sell a House with an IRS Lien?
Yes. Two primary paths.
Path 1: Full payoff at closing
If there's enough equity in the property to pay off the mortgage AND the full IRS lien amount, the closing attorney handles both payoffs from the sale proceeds. The closing attorney contacts the IRS to get a payoff amount, includes it on the closing disclosure, and sends the payment to the IRS after closing. The IRS then releases the lien.
This is the simplest scenario. Your house is worth $300,000. You owe $180,000 on the mortgage and $35,000 to the IRS. The sale proceeds cover both, plus closing costs, and you walk away with the remaining equity.
Path 2: Discharge of property (when equity is insufficient)
This is more complicated. If the sale proceeds won't fully pay the IRS lien — because there's not enough equity — you need the IRS to "discharge" the lien from the specific property being sold. This allows the sale to proceed even though the full tax debt isn't being satisfied.
The IRS will discharge a lien from property when the sale price represents fair market value and the IRS receives its proper share of the proceeds based on lien priority. You apply for this using IRS Form 14135 (Application for Discharge of Federal Tax Lien).
The discharge process takes time. The IRS Advisory Group reviews the application, evaluates the property value, reviews the proposed distribution of sale proceeds, and issues a discharge certificate. Typical timeline: 30 to 90 days from application. During that time, you cannot close.
To request an IRS lien discharge, you'll need: completed Form 14135, a copy of the purchase contract, a preliminary title report, a proposed closing statement showing how proceeds will be distributed, and a current property appraisal or comparable market analysis. The IRS Advisory Group at (844) 398-8649 handles these applications. Filing early is critical — the 30-90 day processing time starts when they receive a complete application.
The 120-Day Right of Redemption
This is the part that makes traditional buyers nervous. Under 26 U.S.C. 7425(d), the IRS has 120 days after a sale to purchase the property from the buyer at the sale price plus certain expenses. Essentially, the IRS can step in and say, "We'll take that property — here's what the buyer paid."
In practice, this almost never happens. The IRS exercises this right only when the property is worth significantly more than the sale price — suggesting the sale wasn't at arm's length or fair market value. In legitimate transactions between unrelated parties at fair value, the IRS doesn't redeem.
But the theoretical right exists, and it spooks traditional buyers. Their attorney advises them about the 120-day period. The buyer worries about renovating or moving into a property the IRS might reclaim. Some walk.
Cash buyers aren't fazed by this. We understand the redemption right. We price our offers at fair market value (which makes IRS redemption unlikely). And we've been through enough IRS-lien transactions to know the process is routine — not risky.
How Cash Buyers Handle IRS Lien Sales
The extra steps don't scare us. They slow us down slightly, but they don't stop the deal.
We coordinate with the IRS early. As soon as we have a signed contract, we (or the closing attorney) contact the IRS to determine the payoff amount or initiate the discharge process. Starting early keeps the timeline manageable.
We provide the 25-day notice. Under federal law, the IRS must receive at least 25 days' notice before the sale of any property subject to a federal tax lien. The closing attorney sends this notice to the appropriate IRS office. This is a procedural requirement that traditional buyers sometimes miss — and missing it can void the sale.
We fund the payoff at closing. If the equity covers the lien, the closing attorney sends the IRS payoff from the proceeds. If a discharge is needed, the IRS discharge certificate specifies how much they receive from the sale. Either way, the money flows correctly and the lien is addressed.
We accept the 120-day redemption period. We're not worried about the IRS showing up at our door 90 days later demanding the property. Our purchase price is at fair market value. The IRS has no incentive to redeem.
Raleigh, Charlotte, and Durham — Local IRS Lien Patterns
Raleigh
Wake County's Register of Deeds records show a steady flow of federal tax lien filings. Many involve small business owners in the Triangle area who fell behind on payroll taxes or self-employment taxes. The property values in Raleigh typically provide enough equity to cover both the mortgage and the IRS lien at closing — making the full payoff path the most common route.
Charlotte
Mecklenburg County sees similar patterns, with higher property values generally making full payoff feasible. However, homeowners who took out HELOCs or second mortgages during the 2020-2022 price surge may have insufficient equity when an IRS lien is added to the stack. In those cases, the discharge process becomes necessary.
Durham
Durham properties in the lower price ranges — older homes in East Durham, the Fayetteville Street corridor, and some areas near Duke's campus — may have insufficient equity to cover an IRS lien after mortgage payoff. The discharge process is more common here, and the 30-90 day timeline needs to be factored into the sale from the start.
What About State Tax Liens?
North Carolina can also file state tax liens for unpaid state income taxes, sales taxes, or other state obligations. These are filed with the county Register of Deeds and the NC Secretary of State. The process for selling with a state lien is similar but typically faster — the NC Department of Revenue's lien resolution process is generally quicker than the IRS.
State tax liens are also addressed at closing. The closing attorney contacts the NC Department of Revenue for a payoff amount and satisfies the lien from sale proceeds. If you have both a federal and state tax lien, the closing attorney handles both — it adds complexity to the closing disclosure but doesn't prevent the sale.
Stop Avoiding the Problem
IRS liens don't go away on their own. They accrue interest and penalties. They prevent clean title transfer. And they make every financial transaction more complicated — selling, refinancing, even getting a bank account in some cases.
Selling the property and using the equity to pay down or pay off the tax debt is often the best financial move. You clear the lien (or reduce it through discharge), you eliminate the ongoing property costs (taxes, insurance, maintenance), and you take a concrete step toward resolving the IRS situation.
If you have a federal tax lien on your property and need to sell, call us. We'll work with the IRS, handle the 25-day notice, coordinate the payoff or discharge, and close on a timeline that accounts for the federal process. No panic. No shortcuts. Just a clean transaction that gets you unstuck.
Read more about selling a house with liens in NC for additional context on how different types of liens affect your sale.
Frequently Asked Questions
Can I sell my house if the IRS has a lien on it?
Yes. If there's enough equity, the IRS lien is paid off from sale proceeds at closing. If equity is insufficient, you can apply for an IRS discharge (Form 14135) allowing the sale to proceed with the IRS receiving its fair share of proceeds based on lien priority.
How long does it take to get an IRS lien discharge?
The IRS discharge process typically takes 30 to 90 days from submission of a complete Form 14135 application. Start early — the processing time begins when the IRS receives all required documentation, including the purchase contract and proposed closing statement.
What is the IRS 120-day right of redemption?
After the sale of property subject to a federal tax lien, the IRS has 120 days to purchase the property from the buyer at the sale price. In practice, this almost never happens in legitimate arm's-length transactions at fair market value.
Does the IRS lien get paid before or after the mortgage?
After. A mortgage recorded before the federal tax lien has priority. At closing, the mortgage is paid first, then the IRS lien, then other liens in recording order. If proceeds don't cover the IRS lien after mortgage payoff, a discharge application is needed.
Will the IRS negotiate or settle a tax lien for less?
The IRS offers Offer in Compromise (OIC) programs where you can settle tax debt for less than owed, but this is separate from the property sale process. An OIC can take 6-12 months to process. For a faster resolution, selling the property and paying the lien from proceeds is more direct.
