Wife owns current home completely. We are under contract for a 2nd home, would I qualify for the $10k Traditional IRA withdrawl with no penalty for the down payment?

[charles-fritz]

My wife has owned the current home we live in prior to our marriage. We are under contract on a 2nd home, would I be able to take $10k out of my Traditional IRA since this is technically my "first home" without the 10% penalty. The 2nd home will be in both of our names.

[Critter]

I stand corrected ... although that is not how I read the rules on the penalty exception... I read it as both must be first time owners to get the penalty exception for the IRA withdrawal... not that you cannot take the exception for your own distribution.


First home.
Even if you are under age 591/2, you don't
have to pay the 10% additional tax on up to $10,000 of
distributions you receive to buy, build, or rebuild a first
home. To qualify for treatment as a first-time homebuyer
distribution, the distribution must meet all the following requirements.

1. It must be used to pay qualified acquisition costs (defined
next) before the close of the 120th day after the
day you received it.

2. It must be used to pay qualified acquisition costs for
the main home of a first-time homebuyer (defined below)
who is any of the following.
a. Yourself.
b. Your spouse.
c. Your or your spouse's child.
d. Your or your spouse's grandchild.
e. Your or your spouse's parent or other ancestor.

3. When added to all your prior qualified first-time homebuyer
distributions, if any, total qualifying distributions
can't be more than $10,000.


If both you and your spouse are first-time homebuyers
(defined later), each of you can receive
distributions up to $10,000 for a first home without
having to pay the 10% additional tax.

Qualified acquisition costs.

Qualified acquisition costs include the following items.

Costs of buying, building, or rebuilding a home.
Any usual or reasonable settlement, financing, or
other closing costs.

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.

<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p590b.pdf">https://www.irs.gov/pub/irs-pdf/p590b.pdf</a>

[dmertz · Accepted solution]

No.  You are not a first-time homebuyer.  To be a first-time homebuyer, neither you nor your spouse is permitted to have had an ownership interest in a main home in the 2-year period ending on the date of the acquisition of the new home.  Since your wife presently has an ownership interest in a main home, neither of you qualifies as a first-time homebuyer.

[Rainman12]

"For a married couple, both individuals must meet the definition of a first-time homebuyer. Thus, if one spouse owned a residence within a 2-year period before acquiring another residence, that residence will not qualify as a first-time purchase and any distributions used to purchase the residence will not qualify for the exception. This is also true even if the spouse was never a homeowner. §72(t)(8)(D)(i)(l) defines a first-time homebuyer as an individual (and if married, the individual’s spouse) who does not have ownership in a principal residence within 2 years of acquiring a new principal residence."

[mfh2019]

What if the new house is purchased by the first-time home buying spouse? So the only name on the mortgage is the first time home buyer?

[dmertz]

mfh2019, for either spouse to qualify as a first-time homebuyer, both spouses must qualify as first-time homebuyers.  It doesn't matter whose names are on the mortgage.   For an individual to qualify as a first-time homebuyer neither the individual nor the individual's spouse can have had any ownership interest in a principal residence during the 2-year period ending on the date the individual acquires a principal residence.