Tax Liens and Self-Directed IRAs Equal a Surprising Money-Making Opportunity

Tax liens are far more exciting than the term implies. Go to almost any site that discusses tax liens, and you’ll come across expressions like “undiscovered gem” and “amazing returns.” Tax liens deserve your attention because they are, indeed, full of potential profit.

A tax lien is placed by a government entity (normally a county or municipality) on a property in an effort to recoup unpaid property taxes. Rather than wait for the slow payment of the delinquent taxes, the government sells the tax lien certificate at sale or auction. The government gets its money at the time of the sale, and the buyer gets a great money-making opportunity.

Once the tax lien has been sold, the property owner still has a redemption period in which to make the delinquent payments. If the property owner pays off the debt, the investor holding the lien collects the overdue tax monies plus interest (determined by the state) for the period of time he/she held the lien. If the property owner puts the place up for sale, the lien must be paid before a legal sale takes place.

But if the property owner cannot pay the tax debt within the redemption period, then the state may tack on additional penalties, which the investor receives. Some states will, at that point, allow the investor holding the lien to take over the actual property. Some investors choose to sell it; others use it for rental income.

The purchase of tax lien certificates is a surprisingly safe investment, and the transaction is a rapid one – especially if you have access to a self-directed IRA with checkbook control. When you purchase a tax lien as an investment on behalf of your IRA (tax lien IRA) – and if your account is structured correctly – there are no taxes or penalties for taking a distribution. With a self-directed IRA checkbook in hand, you can make tax lien purchases the moment they become available.

Each state – and often each county within each state – structures the tax lien system differently. Some states require that the buyer be physically present for the auction or sale. So do your homework!

There are some excellent online resources available. You might take a look at www.taxliens.com, which lists the sales/auction information for each state. For info on purchasing tax liens with a self-directed IRA, go to “Tax Liens and Deeds” at http://www.guidantfinancial.com/resources/faq.aspx?sid=55af8bfe-097b-423c-a999-2a04ca9c840b

Wishing you success,
SFPetersen