For IRA distribution exception for 1st time house purchase, what form of proof must I furnish to IRS that distribution was for house purchase and when must I furnish it?

Forum|Forum|7 years ago
June 4, 2019
4 replies
21 views

Looking for specific information on timing, order of actions, types of proof, IRS forms to complete, etc. to correctly take advantage of the penalty free distribution.

TurboTax Deluxe Online

Carl

Level 11

Assuming it would be an early withdrawal, the maximum amount you can pull from your IRA for a first time home purchase is $10,000. For that withdrawal you will receive a 1099-R showing a code 1 in box 7 indicating that it's an early withdrawal and therefore subject to taxes *and* the 10% early withdrawal penalty.

Then when reporting your home purchase, you show that you spent $10,000 buying that first home (down payment, closing costs, etc.) and that's it. All that information will be on the HUD-1 closing statement that you will receive at the closing. Keep that HUD-1 statement *FOREVER*. I can guarantee you that you will need it in the future.

Do understand that you *WILL* pay taxes on the early withdrawal no matter what. However, when you indicate the entire amount was used for a first time home purchase, the 10% penalty will be waived.

Anonymous

Carl, thank you so much and this was very helpful. Yes, I do understand we will pay taxes on the early withdrawal - just not the 10% penalty. Again, thank you.

rjs

Level 15

You do not have to furnish any proof with your tax return. You only have to furnish proof if the IRS asks for it. They will want to confirm the date of the distribution and the date of the closing to show that the closing was within 120 days after the distribution. The closing date will be on the closing documents. The Form 1099-R for the IRA distribution does not show the date of the distribution, so you would need to have a confirmation or statement that shows the date. As Carl said, they will also look at the closing document to see that the amount you paid at the closing is at least as much as the distribution.

After you enter the 1099-R in TurboTax, and after you enter any other 1099-Rs that you have, continue through the interview. You will get to a screen that asks whether you used the money for one of the things that qualify for an exception to the penalty. When you enter the amount in the box for first home purchase, TurboTax will fill out the necessary form (Form 5329) and include it in your tax return.

Nwasher1

Level 3

We purchased a house this year after not owning one for 2 and half years. So we qualified for the IRA distribution of $10,000 and we took money out then closed. But my 1099-r doesn’t show the exemption code. I followed the instructions on TT and a form 5329 was created for me. Do I need to have our IRA company re-issue a corrected 1099-r showing the exemption for the first time home purchase? Or is the form 5329 all we need?

dmertz

Level 15

Form 5329 claiming the code 09 exception on line 2 is all you need.

Regarding the Form 1099-R, code 1 is correct. An IRA custodian has no way to know if you qualify for this exception so there is no code for indicating this on your Form 1099-R. It's your responsibility to claim the first-home exception on your tax return if you qualify.

kalenebernhardt

Level 2

If you withdraw from a Roth for first time home purchase, will you still be taxed on the amount as income?

Opus 17

Level 15

@kalenebernhardt wrote:

If you withdraw from a Roth for first time home purchase, will you still be taxed on the amount as income?

When you withdraw from a Roth, you are treated as withdrawing contributions first, conversions second, and earnings last. Withdrawal of contributions is never taxed. Sometimes, a withdrawal of a conversion is subject to a 10% penalty, and withdrawal of earnings is always subject to a 10% penalty if you are under age 59-1/2. Withdrawal of earnings is also subject to regular income tax if you are under age 59-1/2. How your particular withdrawal is taxed is based on the makeup of funds in your specific Roth IRA.

So for a Roth IRA, the first time homebuyer exception means that if you withdraw contributions, they are tax free, as always. If you withdraw a prior conversion that is subject to the 10% penalty, you can be exempt from the 10% penalty for the conversion withdrawal, and if you withdraw earnings before age 59-1/2, you can be exempt from the 10% penalty but not regular income tax (up to a combined maximum of $10,000 of conversions and earnings).

Linds B

Level 2

I would like to make a withdrawal from my retirement account for a down payment of my first home. This is retirement account is just in my name. This is first time I am purchasing a home, but not my husband's. We are on the home contract together. Will I be taxed 10% or will I qualify for exemption?

Opus 17

Level 15

@Linds B wrote:

I would like to make a withdrawal from my retirement account for a down payment of my first home. This is retirement account is just in my name. This is first time I am purchasing a home, but not my husband's. We are on the home contract together. Will I be taxed 10% or will I qualify for exemption?

You can be exempt from the 10% penalty for early withdrawal for up to $10,000 used for a "first time" home purchase. The IRS definition of a "first time" purchase is that you can't have owned or co-owned the place you considered your main home at any time in the 2 years prior to the home purchase that you want to use for the exception. If you are married, your spouse must also meet the no-ownership requirement for the past 2 years.

That means you can qualify for the exception if you or your spouse owned other property, and you can qualify for the exception if your spouse owned a home but sold it more that 2 years ago, or moved out and used it as a rental, as long as you and your spouse did not own the home you used as your main home for the past 2 years.

Also, the homebuyer exception only applies to IRAs. Not to any other kind of plan. If you have a 401k or other plan, you may be able to do a rollover of funds into an IRA and then withdraw from the IRA. But if you directly withdraw from another plan, it won't qualify for the penalty exemption.