We had to withdraw from our Roth IRA to refinance the home since the value dropped in the market. Can we deduct this amount

[billybsgal]

We had to refinance our home (getting out of an interest only mortgage) into a VA loan.  We needed extra funds to close on the property (Due to the value of the home dropping) there is a question about refinancing but then nothing else.  Can we claim it?

[DS30 · Accepted solution]

Unfortunately, there is no special deduction or penalty avoidance for taking money out of your Roth IRA to refinance your home.

However, you are allowed to take a deduction for certain expenses related to your refinancing (ie: points paid).

Please see the following link for more information about mortgage refinancing tax deductions:

https://turbotax.intuit.com/tax-tools/tax-tips/Rental-Property/Mortgage-Refinance-Tax-Deductions/INF...

To avoid double taxation on the withdrawal of Roth contributions, when you get to the screen that titled "Enter Prior Year Roth IRA contributions", make sure you are entering the total amount of all your previous Roth contributions. (see screenshot)

You can always withdraw contributions (but not earnings) that you made to your Roth IRA tax and penalty free at anytime. Additionally, the Ordering rules for withdrawals from a Roth IRA are: first from regular contributions, then from Conversion and rollover contributions, on a first-in, first-out basis and finally from Earnings on contributions.

The withdrawal of earnings are considered taxable income and if this is not a qualified distribution, you may be subject to additional penalties.

Please refer to this IRS link for more information about Roth IRAs:

https://www.irs.gov/publications/p590b/ch02.html#en_US_2015_publink1000231071

To enter your 1099- R in TurboTax Online or Desktop (you may need to upgrade to report these distributions), please follow these steps:

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Wages and Income” ("Personal Income" in TurboTax Home & Business)
3. Next click on "jump to full list" or “I’ll choose what I work on”
4. Scroll down the screen until to come to the section “Retirement Plans and Social Security”
5. Choose "show more", then IRA, 401(k),Pension Plans (1099-R) and follow the onscreen instructions
6. Select continue when you get to the screen with the list of retirement funds
7. About 4 screens in, you will get to the screen asking about prior year contributions

Please note that all distributions will be reported on your tax return (whether or not they are taxable) on Form 1040 on line 15(a) (or 16(a) but only the taxable portion will show on your return as taxable on line 15(b) (or 16(b)).

To preview 1040 in TurboTax Online:

• Sign into https://myturbotax.intuit.com/
• Under Tax Timeline, click on Continue your return
• Go to "My Account" > "Tools"
• Under the Tools Center, select "view tax summary"
• Select "Preview my 1040"

[Rosiered]

Follow up question: can I use the home buyer exception for a withdrawal from a traditional IRA to make mortgage payment (s) or in connection with a refi?  I bought an expensive home a year ago and have just lost my job.  $10,000 would cover 2 payments. Thx.

[dmertz]

No.  You are not a qualified first-time homebuyer because you already own the home.