You cannot deduct the IRA distribution used as a down payment for a home.
HOWEVER, if you are younger than 59-1/2 there is an exception to the 10% withdrawal penalty for first-time home purchases (no home ownership in prior two years). This exception is limited to $10,000.
After the entry screen for the 1099-R you will eventually see a screen, Did you use your IRA to pay for any of these expenses? Enter the amount of the distribution you used for a down payment in the box, First home purchase. [See Screenshot #1, below.]
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