IRA withdrawal/first time homebuyer

[ndrwrly1]

Need help with a gray area in what's considered a first time homebuyer. IRS is very loose in it's explanation; it seems there's a two-year rule which resets you back to that status after the time has elapsed. I'm trying to avoid the 10% penalty like the first time. Below is a quick synopsis. Thank you.

-Purchased a home in 2016; used IRA funds for down payment.

-Home was primary residence for over two years. 

-Joined active duty; converted property to rental in 2018. Principal residence in Texas and rental is in Ohio.

-Rented property out from 2018 to 2020; sold property in 2020.

-Orders to PCS to Washington; looking to borrow from IRA again to supplement the down payment.

My question is this:

Since the rental property in Ohio was not my principal residence (even though we owned it), are we now considered first-timers again since it's been two years? 

[ColeenD3 · Accepted solution]

Yes. It was no longer your main home. I am assuming you rented in Texas.

The exact wording from the IRS is: 

First-time homebuyer. Generally, you are a first-time homebuyer if you 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.

[irsconfused]

If I purchased the home many years ago as a first-time buyer, still live in that home, but want to rebuild the home with a recent distribution, because I was a first-time buyer THEN is the distribution NOW exempt up to the first $10K ?

[AnnetteB6]

No, it wouldn't work that way.  You would have needed to not have an interest in a home for at least two years prior to the date of purchase or rebuild of the home in order to qualify for that exception to the early distribution penalty.

@irsconfused