For clarification, there currently is no first time homebuyer exemption for federal tax purposes, but there is an exception to the early withdrawal penalty from qualified retirement plans. In TurboTax you will be prompted, when you enter the information from the 1099-R that you will receive, with questions regarding why you took the early distribution and then presented with a list of exceptions. You'll simply checkmark the box for first time home buyer. There may be a state level exemption or credit of some type, but all of the states vary so widely you will need to check with the state department of revenue.
We can't provide tax planning in this forum, but here are some tips from our experts. When looking at reducing your tax liabilty there are things you could consider such as increasing charitable giving to combine with the other items included when itemizing deductions, such as the mortgage interest you mentioned. You can also get an itemized deduction for state and local taxes. This would include property tax, sales tax, and income taxes.
@deannarippy Hope this helps!
Cindy
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