There is an exception to the 10% early distribution penalty for a first time home purchase if the distribution was from an IRA and the amount was $10,000 or less. There is not an exception if the distribution was from a 401(k) account.
If this was for a first time home purchase and from an IRA then after completing the entry of the Form 1099-R you will come to a screen to select the exception to the penalty.
You cannot change the code in box 7 of the form on your own. If the code is incorrect then you would need a corrected Form 1099-R from the plan administrator.
