If I took distribution from IRA to buy 1st home over 59 1-2 and Fed taxes w/h why is all considered income?

[hate2owe]

I am not being asked by Turbo about buying the home.

[macuser_22]

It does not specifically ask that and it is all income.   A 1st home does not eliminate any tax. it only eliminated the additional 10% early distribution penalty if you are under age 59 1/2 on up to $10,000 of the taxable distribution.

It comes in the 2nd part of the 1099-R interview.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

[Opus 17]

Traditional IRA distributions are ALWAYS subject to regular income tax.

Being a first time home buyer would exempt you from the 10% penalty for early withdrawal, but you are already exempt by your age. 

[dmertz]

The first-time homebuyer exception only exempts you from any early-distribution penalty, not from any income taxes on a distribution from a traditional IRA.  Since you are over age 59½, there is no need to ask about the use of the money to buy a first home because this exception is not needed because the distribution is already not subject to any early-distribution penalty.