Why You Should Handle Tax Debt Before Buying a Home
All too often, Americans with tax debt get into serious trouble with the IRS – especially those who buy a home without first handling their tax debt.
Typically, purchasing a home with unfiled or unpaid back taxes will result in the IRS placing a tax lien on your property or your assets. You will maintain legal ownership of your assets, but you will not be able to sell or borrow money against your assets.
A lien shies away creditors and potential buyers, making it difficult to get approved for loans or refinancing. While tax debt and or liens do hinder your ability to get approval for a mortgage, they do not outright nullify it.
However, you will still have to make efforts to resolve your tax issues before a lender will consider your mortgage application. All the more reason why you should settle your tax debt before buying a home.
Your Credit Score and Home Buying
Financial experts often say that it’s advantageous to have a reliable history of paying your bills on-time and a steady income when purchasing a home. Additionally, you will need to meet the lender’s recommended credit score.
Higher credit scores earn better loan terms, but it is possible to buy a home with bad credit. If you do have a low credit score, the lender will usually require you to pay off any outstanding collections or tax debt.
To resolve your back taxes, many specialists recommend that you enter into a payment agreement with the IRS and complete a year of on-time payments. While this is good advice, entering into an installment agreement with the IRS is not your only option, nor is it the most ideal.
The Reality of IRS Payment Plans
An unknown fact about the IRS is that they want to get delinquent taxpayers on payment plans. These plans are unreasonably long, have harsh penalties, and continuously accumulate interest; they are designed to make the IRS the most money possible.
Alternatively, you could drastically reduce your debt and eliminate tax liens with an offer in compromise. Negotiating for an offer in compromise with the IRS on your own is very difficult – requiring extensive knowledge of the tax code.
Instead, have the TaxRise team represent you before the IRS. We have a 98.6% success rate of placing our clients in an IRS resolution – contact us today.
Any new or systemic Liens and/or Levies will also be suspended for the time being.
For taxpayers who are considered “seriously delinquent”, the IRS will suspend any new certifications for the remaining period. Any taxpayer who falls into this category in reminded and encouraged to enter into an Installment Agreement or apply for an Offer In Compromise.
The IRS will not forward any new delinquent accounts to private collection agencies at this time.
Taxpayers have until July 15, 2020 to verify to the IRS they are qualify for the Earned Income Tax Credit or to confirm their income. If the taxpayer is unable to verify their credentials or provide appropriate documents for this credit, they are encouraged to notify the IRS before the deadline. No cases will be denied this credit for failure to provide requested information until July 15.
Case workers will continue business as usual. However, most case work will be conducted remotely (video/over the phone conferences). Any requests for documentation sent by the Office of Appeals should be responded to in a timely manner to ensure a smooth process.
The IRS will continue to take the appropriate measures to stay compliant and protect the applicable statutes of limitations. In situations where certain statutes may be compromised, taxpayers are encouraged to extend such statutes. Otherwise, Notices of Deficiency will be issued by the IRS and similar actions will be pursued to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.
Practitioners are reminded that PPS wait times may be significantly longer, depending on staffing levels and allocations going forward. The IRS will continue to monitor this as situations develop.
“The IRS will continue to review and, where appropriate, modify or expand the People First Initiative as we continue reviewing our programs and receive feedback from others,” Rettig said. “We are committed to helping people get through this period, and our employees will remain focused on these and other helpful efforts in the days and weeks ahead. I ask for your personal support, your understanding – and your patience – as we navigate our way forward together. Stay safe and take care of your families, friends and others.”
Learn how easy it is to qualify for tax savings.