Can You Sell Land With Back Taxes Owed? Your Options Explained

Owning a piece of land sounds simple — until property tax bills start piling up. Maybe the land was inherited and sitting unused. Maybe life got complicated and the bills slipped through the cracks. Whatever the reason, many landowners find themselves owing back taxes and asking the same question: Can I even sell this land now?

The answer is yes. Back taxes do not prevent a sale in most situations. But there are important steps to understand, and waiting too long can make the situation harder and more expensive to resolve.

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What Is a Tax Lien?

A tax lien is a legal claim the government places on a property to secure payment of an unpaid tax debt. According to the IRS, a federal tax lien arises once the IRS assesses a tax liability, sends a demand for payment, and the taxpayer fails to pay.

County and state tax liens work similarly. When local property taxes go unpaid, the taxing authority records a lien against the parcel. This surfaces during any title search — a review of public records that a title company performs before closing to verify ownership and flag outstanding claims.

Key things a tax lien does:

• Signals to buyers and lenders that the government has a prior claim on the property

• Can complicate or delay a sale if not addressed

• Grows as interest and penalties accumulate

  
  

What a lien does not do: block a sale outright. It travels with the property but can be resolved at or before closing.

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How Back Taxes Are Resolved at Closing

The most common path is letting the title company handle the lien payoff at closing. When a property sells, proceeds flow through an escrow account. The title company pays all lienholders — including the tax authority — before any net proceeds go to the seller.

According to HomeLight, if a seller has sufficient equity, the lien is settled from proceeds at closing just like other closing fees.

What this looks like in practice:

• Title company identifies the outstanding lien during the title search

• At closing, the lien amount is paid directly to the taxing authority from the seller's proceeds

• Buyer receives a clean title; seller receives whatever remains after the lien and fees

No extraordinary effort is required from the seller — the title company coordinates the payoff.

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What If the Proceeds Aren't Enough to Cover the Lien?

If a landowner owes more in back taxes than the land is worth, proceeds alone may not satisfy the lien. Two options exist:

Negotiate with the County

Many county tax offices will work with property owners who reach out proactively. Installment repayment plans or partial settlements may be available depending on the county.

Apply for an IRS Lien Discharge

If a federal tax lien is attached to the property, sellers can file IRS Form 14135 — Application for Certificate of Discharge of Property from Federal Tax Lien. According to the IRS Taxpayer Advocate Service, if approved, this removes the federal lien from the specific property so the sale can proceed.

Key points:

• Must be submitted at least 45 days before closing, per Wiggam Law

• Requires a property appraisal, sales contract, title report, and copy of the federal tax lien

• A discharge releases the lien from the parcel — it does not eliminate the underlying tax debt

Full instructions: IRS Publication 783.

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Why Acting Sooner Matters

Delinquent taxes do not sit still. For federal tax debts, the IRS charges interest from the original due date at the federal short-term rate plus 3%, compounding daily. At the county level, penalties of 1.5% per month can begin accruing once a property becomes tax-defaulted. The longer the wait, the larger the lien and the less remains for the seller at closing.

Most states give counties legal authority to begin foreclosure proceedings after a defined delinquency period. According to Nolo, counties in many states can sell the tax lien to a third-party investor after one to three years of nonpayment. After a lien sale, owners typically have a redemption window — often one to two years — before the lienholder can foreclose, per the Lincoln Institute of Land Policy. In tax deed states, the county can sell the property outright, per Rocket Mortgage. Selling before reaching that stage preserves equity and options.

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Why Cash Buyers Are Often the Best Option

Traditional buyers purchasing with a bank loan need a clean title before their lender will approve the transaction. Properties with unresolved tax liens are difficult to sell through a conventional listing — even when the buyer is willing, the lender often is not.

Cash buyers change that equation.

Direct land buyers are accustomed to purchasing properties with title issues. Because they do not depend on lender approval, they can:

• Purchase land as-is, tax lien still in place at signing

• Allow the lien to be paid from closing proceeds — no upfront payment from the seller required

• Close in weeks rather than months

According to HomeLight, real estate investors are less likely to shy away from title issues and can pay all-cash. For vacant land — where the traditional buyer pool is small — a direct cash sale is often the fastest resolution. Companies like MPL Land Investing work with landowners in exactly these situations: no commissions, no listing fees, closing costs covered, and the process completed remotely for out-of-state sellers.

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Frequently Asked Questions

Does a tax lien prevent me from selling my land?
No. A lien must be resolved before the buyer gets a clean title, but this typically happens at closing — not before the sale is agreed upon.

Who pays the back taxes when land is sold?
Back taxes are paid from the seller's proceeds at closing. The title company coordinates the payoff. The seller typically does not pay out of pocket beforehand.

What is IRS Form 14135 and when is it needed?
IRS Form 14135 is the Application for Certificate of Discharge of Property from Federal Tax Lien. It is used when a federal lien exists and proceeds may not fully cover it. It must be filed at least 45 days before closing.

How long before the government can seize land for unpaid taxes?
It varies by state. Most states allow counties to initiate foreclosure proceedings after two to five years of delinquency. Acting before that point preserves the seller's equity.

Can out-of-state landowners sell land with back taxes without traveling?
Yes. Direct land buyers handle the process entirely remotely — document signing, title coordination, and wire transfer of proceeds.

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This article is for informational purposes only and does not constitute legal or tax advice. Landowners with complex back tax situations should consult a licensed tax attorney or CPA.

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Sources:

• IRS — Understanding a Federal Tax Lien

• IRS Taxpayer Advocate Service — Lien Discharge

• IRS Publication 783 — Certificate of Discharge from Federal Tax Lien

• IRS Form 14135 — Application for Certificate of Discharge

• HomeLight — Can You Sell a House With Back Taxes Owed?

• Wiggam Law — IRS Lien Discharge and Form 14135

• Nolo — State Laws on Property Tax Sales

• Lincoln Institute of Land Policy — Property Tax Delinquency in the United States

• Rocket Mortgage — Tax Deed States Guide

• County Treasurer-Tax Collector — Redemption Information