Is a Texas Homestead Exempt From IRS Seizure for Taxes?

Texas has one of the most generous homestead exemption laws in the nation, but not even the Lone Star state can save your home and land from the Internal Revenue Service. If you owe taxes and can't keep up with an IRS payment plan, your homestead is Texas toast.

Tips

  • Your Texas homestead can be exempt from IRS seizure if you've owned it at least 40 months and have less equity than $170,350, as of May 2019. There are some exceptions to consider, though.

What Is a Homestead?

A homestead is real estate that creditors can't seize if you go into debt -- that is, you can't be forced to sell it to pay most types of private debt. In Texas, an individual can homestead 10 acres of urban land or 100 acres of rural land; a family, 20 acres in town or 200 acres in the country. You can homestead only your primary residence.

You don't even have to be a Texan or buy a house to take advantage of this approach. You can homestead open land if you demonstrate that you intend to build your home there and take steps toward becoming a Texas resident, such as by getting a driver's license or voter registration card.

Federal Exemption Cap

Texas homestead law puts no upper dollar limit on how much real estate you can exempt from seizure by creditors, but the IRS does for taxes: Your exemption is capped at $170,350 unless you've owned a home in the state for at least 40 months. If you have less equity in your primary residence than that, the IRS won't seize it. That is, if you still owe more than $170,350 on your mortgage, your home is safe.

However, if you moved to Texas in a hurry to escape creditors, the cap can be big trouble. In those circumstances, you may have bought your homestead with cash, because it's tough to get a mortgage if you're facing bankruptcy. Thus, your share of the home equity is 100 percent. If your home can be sold for more than $170,350, the IRS can force you to sell it unless you've been a Texas resident for at least 40 months.

Implications of the Homestead Law

There are a few quirks to the law: First, you don't necessarily have to live in your homesteaded house for a full 40 months; 730 days may be enough, as long as you've owned the house for 40 months. Second, if, during those 40 months, you've sold one property and bought a more expensive one, the proceeds from the sale of the first may be added to the cap.

Remember, we're talking about Texas. The $170,350 exemption doesn't apply in every state. It a state has a lower exemption amount, state law usually applies instead.

Once the income tax is paid, you can use any leftover money to buy a new home and homestead it. If you do that within six months, the new homestead still is safe from other creditors.

Exceptions to Homestead Protection

Nine items other than IRS taxes can breach homestead protection in Texas:

  • Mechanic's liens for work on your property
  • Loans on the purchase price of your house (purchase money liens) 
  • Divorce, if you are dividing assets
  • Refinancing 
  • Liens that existed before your property was declared a homestead 
  • Home equity loans 
  • Reverse mortgages 
  • Local property taxes (ad valorem tax) if you're seriously delinquent 
  • Trying to hide assets -- that's evidence you're trying to commit fraud. Fraudulent intent makes you ineligible for homestead protection.

Ad Valorem Exemptions

Another form of homesteading has to do with local taxes. If you're 65 or older and live in a Texas county that allows it, your homestead can be exempt from certain local property taxes. This exemption has nothing to do with property-tax debt – it's a tax break. It's also available to some disabled residents. However, if you're seriously behind on local taxes, you can conceivably be forced to sell your homestead to pay them.