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What is a Tax Lien and How Can You Profit From It? Frequently Asked Questions About Tax Liens
1. What is a Tax Lien Certificate?
A tax lien is the name of the claim that a taxing authority, such as the local or federal government, makes when an individual has not paid taxes for a lengthy amount of time. Tax Liens are most often applied to homes. Essentially, the government ceases control of the property, pending payment on taxes.
The taxing authority, will then sell a certificate for an asset, such as a piece of real estate or boat, if the owner of the property has been negligent in paying his or her taxes. Anyone can purchase a certificate by attending a tax lien sale auction in the county in which the unpaid taxes are owed.
2. How can I make money from my tax lien certificate?
You may be surprised to know that Tax Lien Certificates are far more profitable than Certificates of Deposit and just as safe. Tax Liens are also safer than the stock market and offer an equal rate of return.
If you invest in a tax lien certificate, you can earn a very high interest as much as 25% on the unpaid taxes from the owner of the property, which will be owed directly to you instead of the government.
Since the interest earned currently on a CD or a regular savings is only about 3-4%, it really pays to check out the tax lien strategy to get a higher payback.
Essentially, you are acting like a bank and gaining interest even though you never made the loan because you owe the certificate. Once all of the interest and taxes are paid, then the property owner can reclaim the property by gaining control of the tax lien certificate from you.
However, if the owner never claims the property or pays the taxes, then you will gain ownership of the property deed. Either way, you'll be in a position to make money from the tax lien on the property by gaining either interest or the property itself.
3. Can I purchase a tax lien in a town in which I do not reside?
Yes. You can purchase a tax lien in any town, even if you are not a resident of the particular town. The only trick is that you have to actually travel to the town in order to attend the tax lien sale auction.
4. What is a tax lien sale auction?
A tax lien sale auction is the method by which tax lien certificates are sold. Like any auction, bidders will bid for the property or tax lien properties that they are most interested in purchasing. You can bid for as many properties at one time as you desire.
5. Where do I find out where the tax lien auctions are?
Information on tax lien sale auctions are matters of public record. You can contact the local government in the town in which you choose to purchase a tax lien, or you can subscribe to a service online that provides that data to you. Visit http://www.liensource.net/ for more information on subscriptions to information.
6. How often do tax lien sales occur?
That varies. There are generally 1-3 tax lien sales a month per locality. Check with the local government for more information and to obtain a tax lien sale calendar.
7. How much capital do I need to begin?
The amount of money you need to invest into your tax lien purchase business depends entirely on the particular properties you're interested in purchasing. Properties range from small homes to mansions.
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Tax Related News
Technology And Tax Filing (CBS News)It's tax season, and with all the options out there, filing can be a little confusing. Ray Hennessey, Editor of SmartMoney.com, offers some advice on using tax software to file and when it may be best to file with a tax pro.
Webcast To Discuss New Tax-Exempt Legislation (SmartPros Accounting)March 12, 2007 (SmartPros) This month's edition of Tax Talk Today, a Webcast sponsored by the Internal Revenue Service, will feature information on changes affecting tax-exempt organizations, the people who donate to those organizations, and tax-related property appraisals of donated items.
Middle-class Tax Relief (The Decatur Daily)MONTGOMERY — If you make less than $100,000 per year, you could save anywhere between $25 and $375 from Gov. Bob Riley’s proposed income tax cuts. The amount will depend on your marital status, number of dependents and income.
District Seeks To Send Message With Tax Plan (The Express-Times)U. MT. BETHEL TWP. | The Bangor Area School Board last week formalized a new taxing proposal despite scores of people opposing the plan. District voters will decide in May whether to create a 1.65 percent personal income tax in exchange for an estimated $537 in property tax rebates.
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