I was under the impression that if I took money out from my 401k to pay for my down payment it wouldn’t be taxed, is that true?

[BillM223]

No, you will be assessed income tax (the amount of the distribution is added to your income...but you won't have to pay the 10% early distribution penalty if you are under 59 1/2 and satisfy the conditions.

[fanfare]

There's NO housing related exemption for 401k distributions.

[xmasbaby0]

When you take money from a traditional IRA there is not a 10% early withdrawal penalty if you are a first time home buyer under the age of 59 1/2.  There is no such exception to the early withdrawal penalty for a 401k.  You are subject to a 10% early withdrawal penalty and ordinary income tax on the distribution from your 401k--making it an expensive way to make your down payment.  Sorry.

You should have a 1099R for this.

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.