Can I take an early distribution from my IRA to buy a mobile home that doesn't have a traditional mortgage? How do I prove it was used for that and avoid the 10% penalty?

[Anonymous]

Once you withdraw your contributions, you can take out up to $10,000 for a first-time home purchase – without paying the 10% penalty. As an added bonus, if you’ve had the Roth IRA for at least five years, the withdrawn earnings are tax-free; if it’s less than five years old, the earnings are taxable.  

You are considered a first-time homebuyer if you haven’t owned a home (or had financial interest in one) at any point during the last two years. So, even if you owned a house at some point in the past – say, five years ago – you may well meet the first-time buyer requirement.

The rules differ depending on which type of IRA you have. If you qualify as a first-time homebuyer, you can withdraw up to $10,000 from your traditional IRA to help cover the costs of buying a home. Your spouse can also withdraw up to $10,000 from his or her IRA (remember, IRAs are individual retirement accounts; you don’t “share” them with a spouse). Remember that even though you’ll avoid the 10% early withdrawal penalty, you’ll still owe income tax on any amount you (and your spouse) withdraw.

The rules are a bit different with a Roth IRA. You can withdraw contributions you’ve made to your Roth IRA tax-free and penalty-free at any time, for any reason (this is because you’ve already paid taxes on the contributions). Once you withdraw your contributions, you can take out up to $10,000 of your earnings for a first-time home purchase – without paying the 10% penalty. As an added bonus, if you’ve had the Roth IRA for at least five years, the withdrawn earnings are tax-free; if it’s less than five years old, the earnings are taxable.

[henryec3]

Not responsive.  Is a mobile home considered a house for IRA distributions?  

[dmertz]

A mobile home can be a principal residence as defined in section 121 of the tax code and qualify as a first home with respect to a qualified first-time homebuyer distribution from an IRA.  See IRS Pub 523 where it mentions that a mobile home can meet the section 121 definition of a principal residence.  (Section 121 has to do with the exclusion of gain on the sale of a principal residence.)

[JulieS]

Yes, a mobile home purchase can be considered a buying a home as long as you make it your main home.

The IRS doesn't define a home in physical terms, so a home can be a boat, trailer, mobile home, etc. Click here to learn more about the definition of main home. 

[henryec3]

Thanks you for trying,.  Form 523 is about home sales, capital gains and such; not IRA distributions.

[henryec3]

Thanks for trying.  Form 523 is about gains, not about retirement savings distributions.  Different federal codes can use different definitions of the same term; e.g. house.

[dmertz · Accepted solution]

Not only trying but succeeding.

I explained that section 72(t)(8)(D)(ii) of the tax code regarding the first-time homebuyer's exception refers to section 121 of the tax code for the definition of a "principal residence."  Section 121 provides the exclusion for the gain on the sale of a principal residence, making IRS Pub 523 a proper reference that shows that a mobile home can qualify as a primary residence with respect to the first-time homebuyer's exception to the early distribution penalty.

[henryec3]

Jolly good.  Many thanks.    That para you cited may hold the key.  I work with mobile home owners.  One reported a Fed fee of $3,333 for his withdrawing $10,000 to buy a mobile.  That section you cited makes it clear only first-time home purchases are exempted.  Very precise information.