Yes, if the IRS audits the return the amount paid on the closing costs & down payment must be the same as the IRA distribution so you can legally take the exemption from the penalty. This is to keep folks from taking a distribution that would otherwise not qualify. If the deal is structured correctly, there is no issue with a buyer walking away from the closing with cash in their pocket which can be used for those improvements. Even if you have to make the repairs to get the loan find someway to do this without tapping into the IRA or if you need to tap the IRA then you have only 60 days to put it back however this "self loan" can only be done once in a 365 day period per person (new rule).
