Are back taxes considered federal debt?

Your federal tax debt is likely to be first classified as a delinquent tax debt and then, if it remains unpaid, it will become a tax lien. Because borrowers with unresolved federal tax debts aren't eligible for mortgages, you'll need to develop and execute a plan to qualify for the loan you need.

Delinquent federal tax debts are back taxes owed

to the Internal Revenue Service. If taxpayers do not meet the payment deadline to file the return, the commission considers that the tax debt is overdue.

Consider hiring a tax lawyer if you receive an overdue tax notification from the IRS. The tax debt is any tax you owe to the IRS after the filing deadline. It doesn't matter if you filed your tax return before the filing deadline and paid a partial amount of your tax bill. The remaining balance will continue to be considered a tax debt.

Most lenders will ask you to file a one- to two-year tax return when you apply for a home loan. Of the two, the state tax debt is considered a more serious risk for the average taxpayer because it tends to last longer than the federal tax debt. To apply for an FHA loan when you owe back taxes, you'll need to go through the manual underwriting process. If you want to make the purchase of your dream home a reality, consider how to pay off the IRS debt quickly by taking steps to resolve the debt with the commission.

Identifying the tax problem and contacting IRS agents before going to lenders is essential to getting the result you're looking for. The first step is to ensure that your tax records are accurate and to reinforce other parts of your loan application. Howard says that lenders also verify credit information, which can show if the borrower has a federal tax debt. Tax liens may remain unpaid if the borrower has entered into a valid repayment agreement with the federal agency that must make regular debt payments and the borrower has made timely payments for at least three months of the scheduled payments.

Once they've estimated how much you owe in taxes, they'll send you a notice informing you of the amount of taxes you owe and how to pay them. If you can't postpone buying a home while paying your tax debt, it's better to use your cash for the down payment rather than paying your back taxes, since a substantial down payment can be an important factor in getting a good interest rate. While many lenders don't do business with taxpayers with state taxes, taking steps to resolve the debt can improve your chances. A tax lien gives the Internal Revenue Service a lawsuit over properties and assets that taxpayers can purchase.

When the IRS discovers that you owe taxes, it will first file a replacement tax return on your behalf to determine your tax liability. However, if you have proof that you're working to resolve your tax debt, many lenders will be willing to work with you to find a solution. If you're ready to buy your dream home but have an outstanding tax debt, seek professional help from people who work with the IRS on these issues every day. The most important thing is to disclose your situation to lenders, including what you are doing to advance the payment of all your back taxes.