Today I’m answering your question, “Are IRS tax liens similar to property tax liens?” and the topics I’ll be covering are:
- IRS Federal Tax Liens vs Local County Tax Liens
- How Do Property Liens Work?
- How to Profit From Tax Auction Property
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IRS Federal Tax Liens vs Local County Tax Liens
I’m Ted Thomas, and today I’m answering a common question about IRS tax liens vs. property tax liens. I’ve been involved in a subset of the traditional real estate business, which are tax liens and tax defaulted property for the past 30 years. These properties have all gone through tax default because the property owners have not paid their property tax.
The IRS is trying to collect income taxes, whereas property taxes are really just that. They’re property tax. There’s a world of difference. Income taxes are sky high rates, 25%, 35% or an even higher percentage of what you earned. While property taxes are pretty low rates, one or two percent.
Can the IRS put a lien on your house? The county treasurer and the IRS are both similar in that they can collect taxes and in that they can put a lien on your property.
What is a property tax lien? The property tax is always the priority lien. It’s always the very first lien. Determining the priority of the lien is very simple. First in time is first in place.
Property taxes pay for schools, the local police department, and firefighters. What about fixing the roads, libraries, and the hospital? The local county has those bills, and property owners have to pay those bills via property taxes. If an owner doesn’t pay the property taxes, the county will place a property tax lien on the real estate.
Property taxes are generally a small part of the total value of the property. I don’t think I’ve ever seen higher than 5%. It’s a very low tax to pay, but it adds up to quite a bit of money simply because real estate has such a high value.
How Do Property Liens Work?
What is an IRS tax lien? The IRS is the federal government and has nothing to do with the county, but they can file IRS tax liens on property.
They file a lien on the person first, then they also file it on the property. So it’s two liens. Now, of course, the people can move. Then what would happen?
Well, they’re not going to take the property with them, so the property can’t be sold or mortgaged. Nothing can change on that property until the IRS finally gets paid.
Property taxes liens on real estate are common. IRS tax liens are not so common, but both of those liens could be filed against the property. So an IRS lien could be on your house. However, the priority lien on the property is always going to be the first one to be paid, and that is going to be the property tax. The county government gets paid before the IRS gets paid.
The local government could actually auction off the property to collect their tax lien, but that would still leave an IRS lien on the property. Therefore, when you buy a tax lien, the property could still have an IRS tax lien on it.
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How to Profit From Tax Auction Property
There are over 3,000 counties across the United States, and all of them are trying to collect property tax. If they can’t collect it, they’re going to auction the property.
The starting bid at a county tax defaulted property auction is going to be the back taxes at least. So the minimum bid might only be 10 or 20 cents on the dollar compared to the assessed value.
If you can buy a property for 10 cents on the dollar and resell it for 50 or 60 cents on the dollar with no mortgage and no deed of trust, how many properties would you like to buy? You’d like to buy as many as possible. Buy them for 10 cents, sell them for 50 or 60 cents. You get to keep that whole margin in between.
How would you sell those properties? Well, you could use eBay, Craigslist, Facebook Marketplace. You can use Zillow, Trulia, the Multiple Listing Service, and you could sit at home and do this on your computer. All those sites are available to you. So you can buy a tax defaulted property online, and you can sell the property online.
The idea is that this is going on, and it will keep going on. It’s been going on for well over 200 years. When they sell the property, an IRS tax lien could still be on it, but the deed of trust and the mortgage loans will be wiped out from the property.
We hope you enjoyed Ted’s lesson, “Are IRS Tax Liens Similar to Property Tax Liens?”
The IRS and local counties are both able to place tax liens on real estate. IRS tax liens are used to collect income tax while counties can place liens to collect delinquent property tax. Both types of liens are similar in function. However, property tax liens take priority over IRS tax liens.
If you’d like to learn how to reap huge rewards from tax delinquent property investing, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.
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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.