topic Capital Gain in Get your taxes done using TurboTax

Capital Gain

jvotel — Wed, 11 Feb 2026 09:54:38 GMT

If I cash in my 401k and use that money as a downpayment on a house, do I consider the entire amount as income, or would it cancel out because it went to a capital purchase (house)?

Re: Capital Gain

VolvoGirl — Sat, 22 Jun 2024 17:05:14 GMT

It is income. It doesn't matter what you do with it except if you roll it over to another 401K or IRA account. It will add to your income and may push you inter a higher tax bracket so be careful. And there is a 10% Early Withdrawal Penalty if you are under 59 1/2. But you can avoid the 10% penalty if you use money from a IRA instead of a 401K to buy a new house.

Re: Capital Gain

jvotel — Sat, 22 Jun 2024 17:07:03 GMT

thanks. I am 63. Isn't there a capital gains exemption of $500k if you are married and filing jointly?

Re: Capital Gain

VolvoGirl — Sat, 22 Jun 2024 17:14:49 GMT

Yes but on a house SALE. Not for buying a house.

Re: Capital Gain

xmasbaby0 — Sat, 22 Jun 2024 17:31:43 GMT

If you take money out of a 401k you will get a 1099R for next year and have to enter it as income on your next tax return. There is no tax break for using money from a 401k for the purchase or down payment on a home. Money you take out of a 401k is taxable income.

You must be confused by the rule that pertains to the SALE of a house----if you SELL a primary residence you have lived in for 2 out of the last 5 years, you do not pay capital gains on $250K if you are single, or on $500K if you are filing a joint return.