Selling an Asset with a Tax Lien on It?

If you largely neglect or underpay your taxes, a Federal tax lien will be attached to almost everything you own. This is also known as a ‘secret’ lien because it will not automatically appear on your public record unless you fail to pay it off. You will eventually receive a demand letter stating that unless you pay the amount you owe, the IRS will file a Notice of Federal lien in the public records offices where you reside and this will reflect on your credit report.

If you wish to sell your property, you need to get the tax lien removed. Otherwise, the IRS may still have the right to seize it from your buyer. Any vigilant buyer would ensure that the property he purchases are free of encumbrances. The good thing is, even if you can’t fully pay your taxes, you can still free some of your assets from a lien, specifically your car, by applying for a discharge.

The IRS is more likely to approve this if your car is sold at a price approximate to its fair market value and if the proceeds will be used to pay your tax debt. For instance, a Notice of Federal lien worth $20,000 is filed against you. If you intend to sell your old car for $16,000, your application shall state that you’re willing to pay the said amount to the IRS in exchange of discharging it from the lien. This means that, excluding interests and penalties, you will then only owe the IRS around $4,000.


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