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What happens if there is a tax lien against the property I am trying to purchase?

What happens if there is a tax lien against the property I am trying to purchase?

Full question:

I plan to purchase a property as tenants in common. I would like to know, if the other owner ended up with a tax lien against the property, in the event of a sale, would that only come out of that owner's percentage of ownership, or would that be paid out of the total proceeds of both owners?

Category: Real Property
Subcategory: Sales
Date: 04/07/2025
State: Utah

Answer:

Please see the information at the following link:

http://www.unclefed.com/AuthorsRow/BJHaynes/liens1.html

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

What are the tax implications of tenancy in common?

Tenancy in common can have several tax implications. Each owner is taxed on their share of the property income, which includes rental income and capital gains upon sale. Owners can deduct expenses related to the property, such as mortgage interest and property taxes, proportional to their ownership percentage. However, if one owner has a tax lien, it may complicate the tax situation, particularly during a sale. It's advisable to consult a tax professional for specific guidance based on individual circumstances.

Do tenants in common file a tax return?

Yes, tenants in common typically need to report their share of income and expenses from the property on their tax returns. Each owner files their own return, reporting their portion of rental income and any deductions related to the property. This ensures that each owner's tax obligations reflect their ownership percentage. It's important to maintain accurate records of income and expenses for tax purposes.

What is the tax deduction for tenancy in common?

Tenants in common can deduct certain expenses related to the property, such as mortgage interest, property taxes, and maintenance costs, proportional to their ownership share. If the property generates rental income, owners can also deduct expenses associated with that income. Each owner should keep detailed records to support these deductions on their individual tax returns.

Can IRS seize co-owned property?

Yes, the IRS can seize co-owned property if one owner has unpaid tax liabilities. The IRS may place a lien on the property, which can affect the sale and distribution of proceeds. However, the seizure typically focuses on the share of the owner who owes taxes, not the entire property. It's important for co-owners to understand their rights and responsibilities regarding tax obligations.

What is the tax form for tenants in common?

Tenants in common generally report their income and expenses on Schedule E (Supplemental Income and Loss) of Form 1040. Each owner must report their share of the property income and expenses separately. Additionally, if the property is sold, owners may need to complete Form 8949 and Schedule D to report capital gains or losses. Consulting a tax professional can help ensure compliance with all tax reporting requirements.

Does the IRS lien have priority over other liens?

Yes, an IRS lien typically has priority over most other liens, including some state and local tax liens. This means that if a property is sold, the IRS lien must be satisfied before other creditors can receive payment. However, the specific priority can depend on the circumstances and timing of the liens. It's advisable to consult with a legal expert to understand how this may affect property ownership and sales.