For IRA distribution exception for 1st time house purchase, what form of proof must I furnish to IRS that distribution was for house purchase and when must I furnish it?

[erickl34]

Looking for specific information on timing, order of actions, types of proof, IRS forms to complete, etc. to correctly take advantage of the penalty free distribution.

[Carl]

Assuming it would be an early withdrawal, the maximum amount you can pull from your IRA for a first time home purchase is $10,000. For that withdrawal you will receive a 1099-R showing a code 1 in box 7 indicating that it's an early withdrawal and therefore subject to taxes *and* the 10% early withdrawal penalty.

Then when reporting your home purchase, you show that you spent $10,000 buying that first home (down payment, closing costs, etc.) and that's it. All that information will be on the HUD-1 closing statement that you will receive at the closing. Keep that HUD-1 statement *FOREVER*. I can guarantee you that you will need it in the future.

Do understand that you *WILL* pay taxes on the early withdrawal no matter what. However, when you indicate the entire amount was used for a first time home purchase, the 10% penalty will be waived.

[erickl34]

Carl, thank you so much and this was very helpful.  Yes, I do understand we will pay taxes on the early withdrawal - just not the 10% penalty.  Again, thank you.

[bensonjandj]

In 2018, where do I show that I'm a 1st time home buyer and used my IRA for down payment?

[Carl]

You don't have to "furnish the IRS" anything, because they already have it. You know those documents you got at the closing showing your $10K down payment? The IRS also has a copy of that information. So they already know.

Basically, you'll enter the 1099-R *exactly* as printed. Then pay attention to the screens that will follow so that you make the correct selections. Now understand this:
The withdrawal *WILL* be taxable income and it *WILL* increase your AGI. No way around that. Period. However, when you tell the program that it was used for a "qualified" purpose (purchase of first home) that will cancel out the 10% early withdrawal penalty on the withdrawal that would otherwise be assessed.
Also be aware that only a maximum amount of $10,000 qualifies for the penalty exception.

[sassymama66]

Great question...curious is there a list somewhere of the eligible home purchase expenses?  For example can I use some of the money for moving expenses?  Thanks!

[rjs]

You do not have to furnish any proof with your tax return. You only have to furnish proof if the IRS asks for it. They will want to confirm the date of the distribution and the date of the closing to show that the closing was within 120 days after the distribution. The closing date will be on the closing documents. The Form 1099-R for the IRA distribution does not show the date of the distribution, so you would need to have a confirmation or statement that shows the date. As Carl said, they will also look at the closing document to see that the amount you paid at the closing is at least as much as the distribution.

After you enter the 1099-R in TurboTax, and after you enter any other 1099-Rs that you have, continue through the interview. You will get to a screen that asks whether you used the money for one of the things that qualify for an exception to the penalty. When you enter the amount in the box for first home purchase, TurboTax will fill out the necessary form (Form 5329) and include it in your tax return.

[Nwasher1]

We purchased a house this year after not owning one for 2 and half years. So we qualified for the IRA distribution of $10,000 and we took money out then closed. But my 1099-r doesn’t show the exemption code. I followed the instructions on TT and a form 5329 was created for me. Do I need to have our IRA company re-issue a corrected 1099-r showing the exemption for the first time home purchase? Or is the form 5329 all we need? 

[dmertz]

Form 5329 claiming the code 09 exception on line 2 is all you need.

Regarding the Form 1099-R, code 1 is correct.  An IRA custodian has no way to know if you qualify for this exception so there is no code for indicating this on your Form 1099-R.  It's your responsibility to claim the first-home exception on your tax return if you qualify.  

[nirvanakhatoon]

In 1099-r form, there isn't any line 2. There are just boxes and numbers.

• Code 9 Cost of current life insurance protection

It is so confusing which number or alphabet that I should use in my 1099-r form to get interview for form 5329 for first time home buyer.

Some people say box 7, I tried all of options but no any questions come that ask me have you bought house or direct me to form 5329 :(.

[macuser_22]

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@nirvanakhatoon wrote:

In 1099-r form, there isn't any line 2. There are just boxes and numbers.

• Code 9 Cost of current life insurance protection

It is so confusing which number or alphabet that I should use in my 1099-r form to get interview for form 5329 for first time home buyer.

Some people say box 7, I tried all of options but no any questions come that ask me have you bought house or direct me to form 5329 :(.

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Are you entering the 1099-R in the correct place?

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.]

[savjordan]

Hello Carl. I was reading through all the replies regarding early withdrawal from a 401K account to purchased a 1st time home.  To my understanding, only a max of $10,000 can be qualified and applied to IRS. My husband did withdraw from his 401k account and used the whole amount he withdrew to put in as a down payment for our first home purchase, but the amount is more than $10,000. My question is do we enter ONLY the $10, 000 amount on the IRS form or do we enter ALL the amount he withdrew in the "Other" interview questions box as an exception. I just want to make sure we are doing it correctly.

[macuser_22]

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@savjordan wrote:

Hello Carl. I was reading through all the replies regarding early withdrawal from a 401K account to purchased a 1st time home.  To my understanding, only a max of $10,000 can be qualified and applied to IRS. My husband did withdraw from his 401k account and used the whole amount he withdrew to put in as a down payment for our first home purchase, but the amount is more than $10,000. My question is do we enter ONLY the $10, 000 amount on the IRS form or do we enter ALL the amount he withdrew in the "Other" interview questions box as an exception. I just want to make sure we are doing it correctly.

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There is NO first home exception for a 401(k) - that is only for IRA's.

[DoninGA]

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@savjordan wrote:

Hello Carl. I was reading through all the replies regarding early withdrawal from a 401K account to purchased a 1st time home.  To my understanding, only a max of $10,000 can be qualified and applied to IRS. My husband did withdraw from his 401k account and used the whole amount he withdrew to put in as a down payment for our first home purchase, but the amount is more than $10,000. My question is do we enter ONLY the $10, 000 amount on the IRS form or do we enter ALL the amount he withdrew in the "Other" interview questions box as an exception. I just want to make sure we are doing it correctly.

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Sorry, there is not a 10% early distribution exemption for a first time home purchase from a 401(k).  That is only available if the funds were withdrawn from an IRA.

See this IRS tax topic - https://www.irs.gov/taxtopics/tc557

You enter the Form 1099-R as received.  If there is an 10% early distribution penalty it will calculated and entered on the Form 1040 as a tax liability by the TurboTax software.

The taxable amount of the distribution entered in box 2a of the Form 1099-R is entered on the tax return as ordinary income and taxed at your current tax rate.  Any federal taxes withheld and entered in box 4 of the 1099-R are entered on the federal tax return Form 1040 as a tax payment.

To enter, edit or delete a form 1099-R -

• Click on Federal Taxes (Personal using Home and Business)
• Click on Wages and Income (Personal Income using Home and Business)
• Click on I'll choose what I work on (if shown)
• Scroll down to Retirement Plans and Social Security
• On IRA, 401(k), Pension Plan Withdrawals (1099-R), click the start or update button

Or enter 1099-r in the Search box located in the upper right of the program screen. Click on Jump to 1099-R

[VolvoGirl]

@savjordan   Sorry to burst your bubble but the 10% Early Withdrawal Penalty exception for buying a house is only for IRA withdrawals not from a 401K.  So you do not have an exception.