First time homebuyer tax credit over two years

[theaimeegg]

Hello,

I bought my first home in January of 2021. I was hoping to close in December of 2020, but the timing didn't work out.

I withdrew money from various accounts (an IRA from an inheritance, closing an old retirement acct, etc.) to close on my home, but all of those withdrawals occurred at the very end of 2020. In those withdrawals, I paid state and local taxes, but I know that I should be able to get some of that back because this is my first home purchase.

My question is: how to I get that money back?

I believe the answer is to amend our 2020 taxes now that the house purchase is complete. But is there anything I need to do in 2021 taxes? Or is this all about amending our 2020 taxes?

Thank you!

[ErnieS0]

You can file an amended return to claim an exemption to the 10% IRA early withdrawal penalty.

You can exclude up to $10,000 of your early withdrawal from the penalty if you were a first-time homebuyer. 

The IRS defines a first-time homebuyer as someone who had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement.

You have up to 120 days from the date of distribution to acquire a home. The IRS defines acquisition as:

• Entering a binding contract to buy the main home for which the distribution is being used, or
• Building or rebuilding of the main home for which the distribution is being used begins.

You do not have to do anything with your 2021 taxes because all the withdrawals took place in 2020.

For more info see First Home.