IRS Home Equity Rule Change: Questions and Answers for Homeowners Who Owe Back Taxes

On June 29, 2026, the IRS updated its Financial Analysis Handbook, IRM 5.15.1. New language in IRM 5.15.1.20(3) says the IRS expects taxpayers to use the equity in their assets toward their tax debt before the IRS considers other collection alternatives, such as an installment agreement (payment plan).

For most families, the biggest asset with equity is the home.

Not automatically. The change sets an expectation, not an order to sell.

The IRS manual still contains protections. It still addresses what happens when a taxpayer applies for a loan and is denied. It still considers economic hardship. And it still looks at whether a loan payment would exceed what your household can realistically afford.

Those protections exist. But they don't apply themselves. Someone has to know where they are and raise them in your case.

In practice, many taxpayers could apply for a home equity loan, get denied once or twice, provide the denial letters, and then move forward with a payment plan without tapping the equity.

In a recent discussion among IRS representatives, one practitioner reported that a California revenue officer told him the IRS now wants the equity used, through a loan or a sale, before finalizing a payment plan. Another practitioner reported the same issue, appealed, and won a payment plan for his client.

The appeal took more than a year.

The taxpayers with the most at stake are those who:

• Owe a larger balance that doesn't fit the IRS's simpler payment plan options
• Have a case assigned to a revenue officer
• Own a home or other assets with meaningful equity

If you owe a smaller amount and qualify for a simpler plan, you generally won't go through a full asset review.

A revenue officer is an IRS employee who works your case in person or by phone, usually from a local office. If you've received a letter or business card from a named IRS employee, been asked to complete a financial statement such as Form 433-A, or had someone visit your home or business, your case may be assigned to one.

If you're not sure, a tax professional can check your IRS account transcripts and tell you.

You can appeal through the IRS Collection Appeals Program (CAP) using Form 9423. The deadlines are short, so act quickly. A representative can also argue that the manual's own protections, such as loan denials, hardship, or affordability, apply to your situation.

Not before you understand your options. Using equity may be the right move for some people. For others, it creates a new debt they can't afford or puts their housing at risk. Get your full picture first: what you owe, what the IRS can actually require, and what alternatives exist.

No. This change is to the federal Internal Revenue Manual. The California Franchise Tax Board has its own collection rules. If you owe both, both need a plan.

• Open your IRS mail and keep every letter.
• Don't agree to sell or borrow on the spot.
• Find out whether your case is assigned to a revenue officer.
• Watch your appeal deadlines.
• Talk to someone who handles IRS collections before your next conversation with the IRS.