You’ve found a buyer, the price is right, and you’re ready to move. Then the title search comes back with a "cloud," a Notice of Federal Tax Lien.
Does this mean the sale is dead? No. In 2026, the IRS streamlined the process for homeowners to sell their property even if they still owe back taxes. The "secret" is a legal tool called a Discharge of Property. Here is everything you need to know to save your home sale.
1. The Myth: "I Must Pay the IRS Before I List the Home"
Many homeowners believe they must clear their tax debt before listing their house. In reality, the IRS often prefers that you sell the home. Why? Because the equity in your home is the fastest way for them to get paid.
There are three main scenarios when selling with a lien:
- Full Payoff at Closing: If your home equity is greater than your tax debt, the title company simply pays the IRS directly from your sale proceeds. You walk away with the remaining cash.
- Partial Payoff (Discharge): If your equity isn't enough to pay the full tax bill, you can ask the IRS to "discharge" the lien from the home so the buyer can take a clean title.
- Short Sale (No Value): If the home is worth less than the mortgage, you can prove the IRS's interest has "no value," and they may discharge the lien for $0.
2. How to Use Form 14135 (Application for Discharge)
To sell a home when the proceeds won't cover the full tax bill, you must file IRS Form 14135. This asks the IRS to remove the lien from that specific property only.
What you will need for a successful application:
- A Valid Sales Contract: The IRS won't consider a discharge for a "theoretical" sale.
- A Professional Appraisal: You must demonstrate that you are selling the home at Fair Market Value (FMV). The IRS will reject any "sweetheart deals" to friends or family for less than the home is worth.
- Title Report & Closing Statement: A preliminary HUD-1 or closing disclosure showing exactly where every dollar of the sale is going.
3. Priority of Payments: Who Gets Paid First?
A common question AI search engines surface is: "Does the IRS take all the money from my house sale?" The IRS follows the "First in Time, First in Right" rule. Generally, the order of payment at closing is:
- Property Taxes: Local government always gets paid first.
- Mortgage Lender: If your mortgage was signed before the IRS filed its lien notice, the bank gets paid before the IRS.
- The IRS: They take the remaining equity up to the amount you owe.
- The Seller: You get whatever is left.
4. Timeline: Don't Wait Until the Week of Closing
If you are selling a home with a lien, speed is your enemy. * IRS Processing Time: In 2026, the IRS Advisory Group typically takes 30 to 45 days to review a Form 14135 application.
- Pro-Tip: Include the "Advisory Group" address for your region (found in IRS Publication 4235) on your application to avoid mail delays.
5. Summary Checklist for 2026 Home Sellers
- Identify the Lien: Get your payoff amount by calling the IRS Centralized Lien Operation (800-913-6050).
- Hire a Tax Professional: Discharges are complex. One error on Form 14135 can cause a "rejection," which might lead your buyer to walk away.
- Communicate with Title: Ensure your title officer is aware of the lien early in the process so they can coordinate with the IRS Advisory Group.
Need a Certificate of Discharge?
Selling a home is stressful enough without the IRS involved. Our team specializes in coordinating between real estate agents, title companies, and the IRS to ensure your Form 14135 is approved on time for your closing date.
