Selling Your Home With an IRS Lien: Discharge Options and Costs

You can sell a home with an IRS lien on it, but you’ll need the IRS to release that specific property from the lien before closing. The tool for that is a certificate of discharge, and you should file the application at least 45 days before your planned closing date. The lien itself doesn’t vanish; it stays attached to your other assets and to whatever tax debt remains. What changes is that the buyer receives clean title and the sale can actually close.

Why the Lien Stops the Sale

When you owe federal tax and don’t pay after the IRS bills you, a lien attaches by law to everything you own, including your home.¹ Once the IRS files a Notice of Federal Tax Lien in your county records, title companies see it immediately. A buyer can’t take clean title because the government’s claim follows the property, so the title company won’t insure or close the deal until the IRS is dealt with directly.

The Certificate of Discharge

A certificate of discharge lifts the federal tax lien from one specific property so title can transfer.² The certificate is conclusive once filed in the same office where the lien notice was recorded. Everything else about your tax debt continues: the balance is still owed, the lien still attaches to your bank accounts, vehicles, and any other real estate, and collection can continue against those assets.

Which flavor of discharge you qualify for depends on the equity math in your particular sale.

Sale Proceeds Cover the Full Tax Debt

This is the cleanest case. The IRS issues a discharge on the understanding that the settlement agent wires the payoff straight from escrow to the IRS at closing. If the sale price covers your existing mortgage, closing costs, and the tax debt in full, most title companies handle this routinely once the certificate is in hand.

You Have Equity, But Not Enough to Pay in Full

If the proceeds won’t cover the tax balance, the IRS can still discharge the property if you pay it at least the value of the government’s interest. That interest is calculated by taking the expected sale price and subtracting the liens that outrank the federal tax lien plus closing costs.³ You’ll submit a proposed escrow agreement showing exactly how the money moves at closing.

An alternative in this same range of cases: the IRS can allow the sale and require that the net proceeds sit in an escrow fund that preserves its claim. The cash replaces the house as collateral, and the IRS keeps the same priority it had before.²

You’re Underwater

If the debts ahead of the IRS lien (typically your mortgage) already exceed the property’s fair market value, the government’s interest in the property is worth zero. The IRS can issue a discharge acknowledging that.³ You still owe the tax, and the lien still sits on your other assets, but the house can be sold.

Other Property Worth Twice the Debt

If you own other property worth at least twice the sum of your unpaid tax liability and any senior liens, the IRS can discharge the home you’re selling and keep the lien on your remaining assets.² This mostly matters for sellers with a broader real estate portfolio.

Cash Deposit or Surety Bond

You can also force a discharge by depositing cash or posting a surety bond equal to the government’s interest in the property. Unlike the other paths, this one isn’t discretionary. Once you post the required amount, the IRS must issue the certificate.²

How to Apply

The form is IRS Form 14135, Application for Certificate of Discharge of Property from Federal Tax Lien.⁴ Plan on assembling the following:

Property address, legal description, and fair market value supported by a recent appraisal or comparable sales.
Proposed sale price, expected closing date, and buyer information.
Details on every mortgage, lien, and judgment against the property, with amounts and priority positions.
Copies of your Notice of Federal Tax Lien showing the tax periods and amounts.
Current financial statements so the IRS can evaluate how the sale affects its ability to collect.

If your case involves partial payment or an escrow arrangement, include the proposed escrow agreement and a closing statement showing how proceeds will be distributed.³

Mail the completed application to the IRS Advisory Consolidated Receipts office at 7940 Kentucky Drive, Florence, KY 41042.⁵ Check the form instructions for the correct internal stop number. Get the application in at least 45 days before closing.⁶

What Happens After You Apply

An IRS advisory group reviews the application and may come back with questions or requests for more documents. Internal IRS guidelines call for a recommendation within 30 calendar days of receiving a complete application, or within 14 days when a foreclosure sale is pending.⁷ That clock starts when the file is complete, not when you first mailed it. Every request for missing information resets it.

In practice the 45-day lead is tight. Backlogs, appraisal questions, and follow-up requests routinely push things past that window. Tell your closing agent and your buyer that the date may slide. When the discharge is approved, the IRS issues the certificate; once it’s filed in the same office where the original lien notice was recorded, it becomes legally conclusive and the sale can close on clean title.²

If the IRS Denies the Discharge

A denial can be challenged through the IRS Collection Appeals Program. Before filing the formal appeal, you have to request a conference with the collection employee’s manager. If that conference doesn’t resolve it, you have two business days to notify the IRS that you plan to appeal and three business days after the conference to get Form 9423 postmarked or received. If the manager never contacts you within two business days of your conference request, you can send Form 9423 directly, but it must be postmarked within four business days of the original request.⁸ These deadlines are unforgiving. Miss one and collection continues without further review.

Refinancing Is a Different Track

If you’re not actually selling but keeping the home and refinancing, the tool you need is a certificate of subordination, not discharge. Subordination leaves the IRS lien on the property but moves it behind the new mortgage in priority. You file Form 14134 instead of Form 14135, and the IRS typically grants it when the refinance will help you pay the tax faster (a lower payment freeing up cash, or a cash-out that goes toward the balance).⁹

What It Costs

The IRS doesn’t charge a fee to process a discharge application. Your out-of-pocket costs are the pieces around it: an appraisal to document fair market value, a title search to confirm the encumbrances, and county recording fees to file the certificate, which typically run $10 to $40 depending on the jurisdiction. If you hire a tax professional to prepare the application and negotiate with the advisory group, expect hourly rates in the range of $200 to $600, or flat fees roughly between $1,000 and $6,500 depending on complexity and location. Simpler math (full payoff from proceeds, no dispute over value) means less need for professional help.

Should You Just Wait Out the Collection Clock?

The IRS generally has 10 years from the date it assesses a tax to collect it.¹⁰ After that window closes, the lien expires and should be released. If you’re within a year or two of that expiration date and don’t need to sell right now, waiting can be a real option.

Some actions pause the clock, though. Bankruptcy, an offer in compromise, a Collection Due Process hearing request, or extended time outside the country can all toll the statute, and an installment agreement can extend the period if you signed a waiver when you entered it.¹⁰ Each tax year has its own 10-year clock tied to its own assessment date, so pull your account transcripts and verify the actual expiration for every period before you decide to wait.

1
Office of the Law Revision Counsel. 26 U.S. Code 6321 – Lien for Taxes
2
Office of the Law Revision Counsel. 26 USC 6325 – Release of Lien or Discharge of Property
3
Internal Revenue Service. Instructions on How to Apply for a Certificate of Discharge From Federal Tax Lien
4
Internal Revenue Service. Form 14135 – Application for Certificate of Discharge of Property From Federal Tax Lien
5
Internal Revenue Service. Collection Advisory Offices Contact Information
6
Internal Revenue Service. How to Apply for a Certificate of Subordination of Federal Tax Lien
7
Internal Revenue Service. 5.12.10 Lien Related Certificates
8
Internal Revenue Service. Form 9423, Collection Appeal Request
9
Internal Revenue Service. Form 14134 – Application for Certificate of Subordination of Federal Tax Lien
10
Office of the Law Revision Counsel. 26 USC 6502 – Collection After Assessment