What does an IRS tax lien mean for a Downriver home sale?
It means the federal government has a legal claim on your house. The IRS’s own manual says that when property under the lien is sold, the government’s claim has to be addressed, and Publication 594 describes a discharge for exactly that case.
Under federal law, once someone owes a tax and doesn’t pay it after the IRS demands payment, the amount becomes a lien on all of that person’s property and rights to property. The IRS lien page says the same thing in plainer words: the lien protects the government’s interest in your real estate, personal property and financial assets.
The part that matters at closing is the public notice. The IRS files a Notice of Federal Tax Lien with a state or local recording office to let creditors know about its claim. For a Downriver home, ask the county register of deeds or your title company what’s on record. Our guide to what a Michigan title company does explains what a title search covers.
So the lien changes the closing, because somebody has to show the IRS how its claim on this particular house gets handled.
If you know of a lien and want the current balance, the IRS Centralized Lien Operation handles payoff requests at 800-913-6050, and both the IRS lien page and Publication 1450 list that number for it.
Can the sale pay off the IRS lien in full?
Yes, when the numbers work. If your sale price covers the mortgage payoff, your selling costs and the full tax balance, the IRS can be paid in full from the sale. Whether that’s the best use of your proceeds is a question for your tax professional.
The IRS lien page says the IRS releases the lien within 30 days after you’ve paid. Section 6325(a) of the tax code and Publication 1450 set the same 30-day window once the liability is fully paid.
Here’s how that plays out in a sale:
- Get a written payoff early. Don’t work from the balance on an old letter. Ask for a current payoff figure, and ask how long it stays good. The Centralized Lien Operation handles payoff requests, as both the IRS lien page and Publication 1450 say.
- Line it up with the mortgage payoff. Ask who is ordering your mortgage payoff for closing. Our mortgage payoff statement guide explains that piece. Ask the title company whether it will pay the IRS from your proceeds at closing and what written figure it needs from you to do that.
- Know the release comes after payment. The 30 days run from when the debt is paid. Ask the title company how it handles a lien that is paid at closing but not yet released in the records, and whether the buyer’s title insurer is comfortable with that timing.
The harder case is when the sale won’t cover the full balance.
What if the sale won’t cover the whole tax debt?
Then a certificate of discharge is one option. The IRS lien page describes a discharge as removing the lien from specific property, and Publication 783 says the certificate removes the government’s lien from the property it names. The rest of your tax debt doesn’t go away, and Publication 594 says the IRS can issue a discharge when you’re selling property and the government receives its interest through the sale.
Section 6325(b) of the tax code lists the grounds, and Publication 783 and Form 14135 walk through each one. In plain terms:
| Basis | What has to be true |
|---|---|
| 6325(b)(1) | Your other property still under the lien is worth at least twice the total of the tax debt and any debts ahead of the IRS |
| 6325(b)(2)(A) | The IRS gets paid at least the value of its interest in the home you’re selling |
| 6325(b)(2)(B) | The IRS’s interest in the home has no value, because debts ahead of it are bigger than what the home will sell for |
| 6325(b)(3) | The sale proceeds are held in an escrow fund, subject to the IRS’s claim with the same priority it had on the home |
| 6325(b)(4) | A property owner who is not the taxpayer deposits money or a bond equal to the IRS’s interest |
If you’re the taxpayer selling your own home, the last row doesn’t apply. Federal law and Form 14135 limit it to an owner who isn’t the person who owes the tax. The IRS’s interest starts with the home’s value and accounts for the liens that come ahead of the IRS, such as a mortgage recorded before the lien notice. Publication 783’s example also subtracts proposed settlement costs, and the Internal Revenue Manual says reasonable and necessary expenses of the transaction may be counted. The IRS decides which costs it accepts.
Apart from what the IRS counts, one Michigan cost to have on your list is the real estate transfer tax. Ask your title company whether it applies to your sale and whether an exemption fits. Our Wayne County transfer tax guide covers that cost in more detail.
Unpaid local property taxes and special assessments can also matter. Ask the title company whether any unpaid tax bill or special assessment on the home comes ahead of the IRS’s lien, because a lien ahead of the IRS changes what’s left for the IRS.
Here’s a made-up example to show the logic. Say a home sells for $200,000, the mortgage ahead of the IRS is $150,000 and the selling costs the IRS accepts come to $15,000. What’s left for the IRS’s interest is $35,000. If the tax debt is $50,000, the discharge payment would go toward that debt and the rest would still be owed. If the mortgage were $200,000 instead, the IRS’s interest could have no value at all. The IRS makes the actual call on value and allowable costs, starting from the appraisal and the other valuation the application asks for.
One more piece for sellers of a principal residence. Publication 783 and the Internal Revenue Manual both describe a limited relocation expense allowance for a taxpayer who can’t afford to move, in a 6325(b)(2)(A) discharge where the IRS receives a payment. You ask for it on Form 12451, and it comes with limits.
What goes into a discharge application?
The application is Form 14135, filed with the instructions in Publication 783. It asks for a lot of paperwork, which is why it belongs near the top of your to-do list rather than the bottom.
Both the form and the publication ask for:
- A professional appraisal by a disinterested third party, plus one additional valuation.
- A copy of the purchase agreement, if you have one. If you don’t, the application asks how the taxpayer will give up their interest in the property.
- A current title report, or a list of the debts that come ahead of the IRS.
- A proposed closing statement, or an itemized list of the proposed sale costs, commissions and expenses.
- A copy of the deed or title to the property.
- For a 6325(b)(3) request, a draft escrow agreement.
Don’t send money with the application. Publication 783 says that for a 6325(b)(2)(A) discharge, the IRS decides the amount due and tells you when to pay. The Internal Revenue Manual describes the next step as a conditional commitment letter once the IRS and the applicant agree on the government’s interest.
After that, the IRS issues the certificate once its conditions are met. Under 6325(b)(2)(A), Publication 783 says that means the agreed payment, proof the taxpayer no longer holds title and a copy of the final settlement statement. The manual lists the same review of the recorded deed, the final settlement statement and the payment. Plan to pay with certified funds. Publication 783 says a personal check holds up the certificate until it clears, and the manual says the IRS withholds the certificate until a payment that isn’t certified funds has cleared.
What should you ask your title company before you list?
Start with your title company and a tax professional at the same time, before photos and before a buyer’s deadline is ticking. A few questions save a lot of scrambling:
- Is there a recorded IRS lien notice on my property, and how many? Ask for copies of each notice so you and your tax professional are working from the same documents.
- Which debts come ahead of the IRS? The mortgage, any home equity line, unpaid property taxes or other liens all change the IRS’s share. If you’re also behind on county taxes, our guide on selling when property taxes are past due covers that side.
- Will you pay the IRS from my proceeds, and what do you need from me? Get the answer in writing, along with who will record the release or discharge once it’s issued.
- Can you prepare a proposed closing statement early? The discharge application asks for one, or for an itemized list of the same costs.
- How long will you hold the closing date? Ask the buyer’s side and the title company what happens if the IRS certificate isn’t ready on time. That conversation is easier before you sign than the week before closing.
The tax debt itself is a question for a tax professional or the IRS. Whether you qualify for a discharge, how much you’d pay, or whether another option fits better depends on your account. What you can control is the order of operations: find the lien early, get real numbers and give the IRS a complete application with the documents it asks for. If you’re still sorting out the rest of your list, our guide to preparing a Downriver home for sale covers the other moving parts.
Frequently asked questions
Can someone other than the taxpayer apply for the discharge?
Yes. Publication 783 and Form 14135 both have a separate section for an applicant who isn't the taxpayer, and both say that applicant attaches a copy of the lien. Talk with a tax professional about who should apply in your situation.
Can the lien notice come off the public record without paying in full?
Sometimes. The IRS can withdraw a filed Notice of Federal Tax Lien in certain situations under Internal Revenue Code section 6323(j), and Form 12277 is the application. A withdrawal isn't a release. The IRS lien page says you still owe the tax, and Publication 594 says a withdrawal doesn't mean the lien is released. Ask a tax professional whether your situation fits.
What if I'm refinancing instead of selling?
That is a different certificate. A subordination doesn't remove the lien, but it lets a new lender move ahead of the IRS. The IRS points to Publication 784 for refinance and loan situations.
What happens if the IRS denies the discharge application?
Publication 783 and Publication 594 both say you'll receive Form 9423, Collection Appeal Request, and Publication 1660, Collection Appeal Rights, with an explanation of the denial.
What if a lien notice seems to refer to me because of a name mix-up?
Federal law lets the IRS issue a certificate of nonattachment when a lien notice appears to cover property of someone who isn't the person who owes the tax, for example because of a name mix-up. The IRS lien page points to Publication 1024 for that application.
Sources
- IRS, Understanding a federal tax lien
- IRS, Publication 783, How to Apply for a Certificate of Discharge From Federal Tax Lien (Rev. 12-2022)
- IRS, Form 14135, Application for Certificate of Discharge of Property from Federal Tax Lien (Rev. 11-2024)
- IRS, Publication 1450, Instructions for Requesting a Certificate of Release of Federal Tax Lien
- IRS, Publication 594, The IRS Collection Process (Rev. 1-2026)
- IRS, Internal Revenue Manual 5.12.2, Notice of Lien Determinations
- IRS, Internal Revenue Manual 5.12.10, Lien Related Certificates
- 26 U.S.C. 6321, Lien for taxes (Cornell LII)
- 26 U.S.C. 6323, Validity and priority against certain persons (Cornell LII)
- 26 U.S.C. 6325, Release of lien or discharge of property (Cornell LII)
Ready to talk strategy? Call David Goad at 313-319-7688.
If you want to dig deeper into the local market, check out the Downriver MI Real Estate Guide. And if you want to get a better feel for who I am and how I work, here's the About David Goad — Downriver Realtor page. If you're comparing agents and trying to figure out who really knows this market, this page on the best Realtor in Downriver MI gives you more context too.
