Are House Inspections and other Closing Costs exempt for Early Withdrawal penalties from RAs?

[skletzka]

I'm looking into buying my first house and am considering withdrawing some money from a retirement account to help cover some of the closing costs and such. Are any home inspections done with the intention of purchasing said house and all other closing costs included in these exemptions from the penalty? The wording of using the money to buy, build or rebuild a home is a little vague. Or are all other closing costs such as lawyers fees, title, appraisal stuff, etc... exempt but not any inspections/testing done?

[xmasbaby0 · Accepted solution]

You can take up to $10,000 from a traditional IRA to purchase a home without having to pay the 10% early withdrawal penalty.    You will still pay ordinary income tax on the distribution.   Be careful----if you take money out of a 401k---it is different and you will have a 10% early withdrawal penalty + ordinary tax.

You will get a 1099R for the money you take from a retirement account.

To enter your retirement income, Go to  Federal> Wages and Income>Retirement Plans and Social Security>IRA  401 k) Pension Plan Withdrawals to enter your 1099R.

Some information on home ownership:

Home Ownership

There is not a first time home buyers credit on a Federal return. That ended in 2010. If your state has such as credit, you will be able to enter it when you prepare your state return.

Buying a home is not a guarantee of a big refund.  Your deductions for homeownership combined with your other deductions (if any) must exceed your standard deduction to change your tax due or refund. If you purchased your home late in the year, you do not even have a full year of home

ownership deductions.

Your closing costs on your new home are not deductible except for prepaid interest, prepaid property tax or loan origination fees.  There are no deductions for appraisal, inspections, title searches, settlement fees. etc.

Your down payment is not deductible.

Your homeowners insurance for fire, hazard, flood, etc. is not deductible for your own home.

Home improvements, repairs, maintenance, etc. for your own home are not deductible.  (With possible exceptions for certain energy credits) (BUT——do make sure you keep careful written records/invoices, etc.  of any improvements you make to the home for someday when you sell it.)

Homeowners Association  (HOA) fees for your own home are not deductible.

Your itemized deductions have to be more than your standard deduction before you will see a change in your tax owed or tax refund.  The deductions you enter do not necessarily count “dollar for dollar;” many of them are subject to meeting  tough thresholds—medical expenses, for example, must meet a threshold that is pretty hard to reach.  The software program uses all the IRS rules that apply to the expenses you enter, and it tells you if you have enough to use your itemized deductions or if using the standard deduction is more advantageous for you.  Under the new tax laws, some deductions have been capped—there is a $10,000 limit to the itemized deductions for state, local, property and sales taxes. 

2024 STANDARD DEDUCTION AMOUNTS

SINGLE $14,600    (65 or older/legally blind + $1950)

MARRIED FILING SEPARATELY $14,600    (65 or older/legally blind + $1550)

MARRIED FILING JOINTLY $29,200    (65 or older/legally blind + $1550)

HEAD OF HOUSEHOLD $21,900    (65 or older/legally blind + $1950)

Go to Federal> Deductions and Credits> Your Home to enter mortgage interest, property taxes, and loan origination fees (“points”) that you paid in 2024  You should have a 1098 from your mortgage lender that shows this information.  Lenders send these in January/early February or you may be able to import the 1098 from the lender’s website.