Unpaid Debt Can Take Your Tax Refund as a Real Estate Investor

At Royal Legal Solutions, taxes are always on our minds. We know what you are thinking. Tax season is months away! However, now is the time to start paying down any unpaid debt you may have. Why? Because certain types of debt will garnish your tax refund check before you even lay your hands on it.

How is this possible?

The Bureau of the Fiscal Service (BFS) is the Treasury Department branch that issues your federal tax refund checks. However, through the Treasury Offset Program (TOP), Congress has authorized the BFS to reduce your refund check in certain cases. In fact, the BFS can reduce or even take all of your refund and apply it to your unpaid debt.

Types of Unpaid Debt

Not all debt will result in the reduction of your tax refund. If you own on your mortgage, for example, your tax refund will not be affected. However, debt related to the below categories can result in a reduction.

  • Unpaid child or parent support (arrears);
  • Federal agency non-tax debts, such as defaulting on your federal student loan;
  • Unpaid state income tax requirements; or
  • Unemployment compensation debts that you may owe to your state

What Happens

Being proactive now can help decrease the amount of debt owed, which can then prevent or reduce the likelihood of losing your tax refund. First, you should contact the BFS TOP call center. You can contact them at 800-304-3107 or TDD 866-297-0517 to inquire about whether your debt falls into any of the categories above.

If you fail to pay any debt that will be subjected to TOP, the BFS will likely reduce or take all of your tax refund in order to pay off the amount owed. If there is a balance after TOP garnishes your owed debt amount, the remainder will be issued to you as a check or through direct-deposit.

Furthermore, if the BFS reduces your tax refund, you will receive a notice with the amount and the agency that filed the claim. You can contest this amount by contacting the agency that filed for the offset.

What if Spouses Files Together?

If you file a joint tax return with your spouse, but they are solely responsible for debt, you may still be entitled to part or all of your refund. To do this, you will need to file Form 8379, also known as the Injured Spouse Allocation.

Speak With a Professional Today

If you are worried about the upcoming tax season, you should contact a professional today. For those who invest in real estate, which provides plenty of financial growth potential, figuring out your tax standing now can help you avoid losing your tax returns. At Royal Legal Solutions, our professionals are here to ensure you get the most you possibly can out of a tax return. Not only can we help save your taxes, our experts are able to better help you protect your assets. To find out more, please take our tax quiz to schedule a consultation with us today!

Last Updated: 
June 14, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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