What is the difference between IRS auctions and tax deed auctions? The biggest difference is which lien has priority, and the answer may surprise you.
Table of Contents:
- IRS Auctions vs Tax Deed Auctions
- Which Lien Has Priority? The IRS Property Lien or Local Property Tax Lien
- Learn More About Tax Sale Auctions
- Read the Video Transcript
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IRS Auctions vs Tax Deed Auctions
Tax deed auctions might sound like the same thing as IRS auctions, but they differ in more ways than one. Keep reading to find out how!
IRS Federal Auctions
The Internal Revenue Service, or IRS, holds IRS auctions where they sell items they have confiscated. This usually happens because of failure to file tax returns or other income or payroll-tax-related violations. This is sometimes called the IRS collection process or “repossession.”
IRS auctions occur at the federal level and have nothing to do with tax deed auctions, which occur at the local level, where each county is a separate taxing entity. You are about to find out how powerful the county is.
Local Property Tax Auctions
A tax deed auction occurs after a property is seized by the county for failure to pay property taxes. Property taxes are a state function administered by the local county.
Property taxes are local taxes, which have nothing to do with the IRS. Taxes on real estate are levied to pay local expenses, such as maintenance of infrastructure, like roads, schools, and hospitals, and the salaries of county employees, like police and firefighters.
During a tax deed sale, the property is sold. The sale takes place via public auction, and the minimum bid for the property is the amount of back property taxes owed plus interest and costs associated with selling the property. The highest bidder gets the property.
Which Lien Has Priority? The IRS Property Lien or Local Property Tax Lien
The main difference between IRS auctions and tax deed auctions is that the IRS auction is debt owed to the IRS, while the tax deed auction takes place before anything goes to the IRS. This means that the IRS can not interfere with a tax deed auction.
Why? Because the local property tax lien is the first lien on the property. It’s the senior lien, and all other liens are subsequent or junior liens.
What does this mean? It means the property tax lien is the priority lien, and all other liens take a back seat to it. When you purchase a property tax lien or tax deed, you are ahead of the bank, the IRS and anyone else who may have a lien on that property.
You have purchased the most powerful lien. This is also why tax deed properties are sold mortgage-free.
With few exceptions, subsequent liens and encumbrances are extinguished by the county on a tax deed property. This includes the mortgage or deed of trust loan. When you purchase a tax deed property, you get the property without a mortgage.
Learn More About Tax Sale Auctions
In conclusion, IRS auctions occur at the federal level, and the properties are confiscated and sold due to income or payroll tax violations. Tax deed auctions occur at the county level, and the properties are seized and sold by the county due to unpaid property taxes.
Additionally, the property tax lien is the senior lien on the property and has priority over all other liens, including an IRS lien.
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Read the Video Transcript:
What Is the Difference Between IRS Auctions and Tax Deed Auctions?
Randy: Hey, thanks for joining us. And I am here talking with Ted Thomas who’s the authority on tax lien certificates and real estate. And we’ve been talking about buying tax deeds and such, and a lot of good information. But here’s something that some folks are wondering about Ted, these auctions that you go to and I believe it’s for the tax deed sale. Is that like an IRS auction? How are they alike? How are they different? What’s the difference?
Ted: What we’re talking about here is property tax and property tax is a state function and it’s administered by the local county. Money that comes in from the property tax takes care of running the county. Now, what does that mean? It means it pays for the sheriff, the police department, schools, some money for the hospital, fix the roads and all that. So this is a local tax and these are local property taxes. Doesn’t have anything to do with the Internal Revenue Service.
Ted (cont’d): Now, the Internal Revenue Service does conduct auctions but those are people that have debt to the Internal Revenue Service and they haven’t paid their personal tax and they haven’t paid payroll tax. So this has nothing to do with that. This tax is prior to the IRS. This is a superior tax that you are paying, the property tax is the absolute first tax on the property.
Ted (cont’d): So the day they created the country, the day that the pilgrims came, they established a tax, that’s the property tax. Every other tax and every other lien is subsequent or after that. So the property tax is the most powerful tax there is. So if you raise your hand at any auction and you buy a tax certificate, like I’m showing you, those tax certificates, you have the priority lien.
Ted (cont’d): You’re ahead of the bank. You’re ahead of the IRS. You’re ahead of any local attorney. You’re ahead of everybody once you own the priority lien on that property. So it’s nothing to do with the IRS which is trying to collect money for payroll taxes and stuff like that. This only has to do with properties within that county. And each one of these counties is a separate entity. There are over 3000 of them in the United States.
Randy: We’ve been talking a lot. There’s a lot of opportunity out there if you’re looking into this stuff. And Ted’s got a lot of good information to share with you and Ted why don’t you give them your web address because you have a lot of great videos like this waiting there.
Ted: Sure. So if you go to tedthomas.com, you can find everything out about tax lien certificates and tax deeds. You can actually see people doing it. You can see classes that we do. There’s so much there, that will be a little bit overwhelming and take longer than our videos are taking today. But just go to tedthomas.com, you’ll learn a lot. I’ll guarantee you.
Randy: Hi, thanks a lot, Ted. Appreciate it.
Get started today by taking advantage of this Free Gift from Ted. Act now, it costs you nothing and will give you a big head start!
Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.