Redeeming Seized Property: Before the Sale and the 180-Day Window After

IRC 6337 is titled Redemption of property, and it gives owners two separate rights. The first applies to any seized property before it is sold. The second applies only to real estate, and only after it is sold. They have different prices, different deadlines and different people you pay.

Right one: redemption before the sale

Under IRC 6337(a), any person whose property has been levied on can pay the amount due, together with the expenses of the proceeding, at any time before the sale. When that payment is made, the IRS must restore the property and all further proceedings on the levy stop.

IRM 5.10.4.13 adds the practical details. You can redeem any time before the IRS makes final acceptance of the highest bid at the sale. You must pay both the full amount of tax, penalties and interest, and the expenses of seizure and preparation for sale. Payment must be in cash, by certified or cashier's check, or by money order payable to the United States Treasury. You can redeem through either the revenue officer or the IRS sale staff.

Notice what "the amount due" means. It is the full liability behind the levy, not the value of the property. That makes pre-sale redemption realistic mainly when the debt is modest relative to the property or when you can borrow against other assets. If paying in full is not possible, the better pre-sale tool is usually a release under IRC 6343, discussed in getting seized property released.

Right two: redeeming real estate after the sale

IRC 6337(b) gives a post-sale redemption right for real property only. The owners, their heirs, executors or administrators, any person with an interest in the property or a lien on it, or anyone acting on their behalf may redeem the property, or any particular tract of it, within 180 days after the sale.

The price is the amount the purchaser paid plus interest at 20 percent per year. You pay the purchaser, or, if the purchaser cannot be found in the county, you pay the IRS for the purchaser's benefit.

IRM 5.10.6.8 fills in two important details. First, the 180 days run from the date the successful bid is accepted and the required payment is received, whether or not the sale allowed deferred payment. Second, the 20 percent rate is compounded daily as required by IRC 6622. The IRM includes a worked example in which a purchaser paid in three installments, and interest is calculated separately from each payment date to the redemption date.

Twenty percent a year, compounded daily, is expensive money. But for a home or a property with substantial equity, it can still be far cheaper than losing it, especially if you redeem quickly.

How the interest math works

IRM 5.10.6.8 walks through an example that shows why the payment dates matter. A purchaser bids $80,000 and pays $40,000 on June 17, 2024, $20,000 on July 2, 2024, and the remaining $20,000 on July 16, 2024. The owner redeems on August 16, 2024. Interest is computed separately on each payment from its own date: 61 days on the first $40,000 produces $1,359.20 of interest, and 46 days on the second $20,000 produces $510.37, with the last payment calculated the same way.

The lesson is simple. Every day costs money at a 20 percent compounded rate, and the clock runs from the buyer's payments, not from when you start making calls. If redemption is the plan, decide early and close quickly.

Personal property has no post-sale redemption

The 180-day right in IRC 6337(b) is limited to real property. Vehicles, equipment, inventory and other personal property can be redeemed only before the sale. Once the sale is complete and the buyer has paid, IRM 5.10.5.18 says the risk of loss passes to the buyer and the property is delivered to them.

If your seized property is personal property, your timeline is the sale date. Plan accordingly.

What the buyer can and cannot do during the 180 days

The buyer gets a certificate of sale under IRC 6338(a), but not a deed. IRC 6338(b) says a deed issues only when the property is not redeemed within the 180-day period, on surrender of the certificate. IRM 5.10.5.9 says that even if everyone with a redemption right conveys it to the buyer, a deed cannot be issued before the 180 days expire.

IRM 5.10.5.7 tells bidders they cannot assume control of the property during the redemption period unless the people holding redemption rights convey them. If the buyer spends money maintaining or improving the property and it is later redeemed, the buyer has no claim against the government or the redemption proceeds; any claim is against the owner under state law. IRM 5.10.5.19 adds that both the IRS and the buyer have a responsibility to keep the property from wasting during the period.

IRM 5.10.5.17.5 notes that a buyer may be advised to record the certificate of sale, which prevents the taxpayer from transferring the property to a good-faith purchaser.

Selling your redemption right

The redemption right has value, and it is transferable. IRM 5.10.5.9 says the right to redeem is conveyable, and the taxpayer and other holders may be told at the sale that they can waive or sell the right to the successful bidder. If they agree, the bidders are told before bidding and the price of the redemption right is announced. The IRM observes that this can produce a greater amount from the sale.

If you do not intend to redeem, consider whether selling the right, or agreeing to convey it in exchange for a higher sale price that reduces your remaining debt, makes more sense than letting 180 days pass.

Surplus proceeds

Whether or not you redeem, watch for surplus proceeds. Under IRC 6342, sale proceeds go first to expenses and then to the liability, and any surplus is credited or refunded to the person legally entitled to it.

IRM 5.10.6.7 says that after the proceeds are applied, the IRS sends Letter 1762, Notification of Surplus Proceeds, by certified mail. The taxpayer is entitled to the surplus unless another person establishes a superior claim. Other tax liabilities not on the original levy, or assessed after the seizure, can be treated as competing claims. Third-party claimants must apply with proof of their claim. The IRM also notes that the IRS has no obligation to pay interest on surplus proceeds.

If you redeem real estate after the sale, the redemption payment goes to the buyer, not to the IRS. It does not reduce your tax debt. That is one more reason to look hard at the numbers before redeeming.

The record and the deed

IRC 6337(c) says that when land sold is redeemed, the IRS must note the redemption on its record of sales, and that entry is evidence of the redemption. If the property is not redeemed, IRM 5.10.6.9 says the deed is prepared in accordance with the laws of the state where the property is located and delivered to the buyer on surrender of the certificate of sale.

Planning a redemption

If you intend to redeem real estate, start immediately. Calculate the purchase price plus daily-compounded interest to a realistic payment date. Line up the financing, often a new mortgage or a sale of other assets. Contact the buyer, or the IRS if the buyer cannot be located, to confirm the amount. Get written confirmation and make sure the redemption is recorded.

If your goal is to keep a home, the strongest position is still to avoid the sale entirely, through a collection alternative before the court approval or seizure stage described in can the IRS seize my house. The firm's main site explains how federal tax liens affect selling and refinancing, which often becomes relevant when you are raising money to redeem. Redemption is a lifeline, not a plan, but when you need it, the law makes it available.