Early 2020, as the COVID situation was becoming imminent, we decided to take an IRA distribution to pay off our mortgage balance out of concern that there would be a long term market downturn. The distribution was paid directly to our mortgage/bank, so these funds never hit our personal bank account. Is this distribution considered income even though it was essentially transferred from one asset to another? Would there be any "exhange" tax laws that apply to this situation?
Thank you
Sorry that was a Distribution. Doesn't matter what you used it for. It is income and taxable. You should have got a 1099R for it. Did they take any withholding out of it? You need to enter the 1099R.
Enter a 1099R under
Federal Taxes on left
Wages & Income at the top
Then scroll way down to Retirement Plans and Social Security
Then IRA, 401(k), Pension Plans (1099R) – Click Start
If you are filing a Joint return be sure to pick which person it is for.
It's just as fast and easier to manually enter your W2 or 1099. Don't type the bank name or try to import it.
At the bottom pick - Change How I enter my Form
Then on the next screen pick - I'll Type it in Myself
Yes, it is reportable income on your tax return. Using the distribution to pay off a debt is not relevant.
To enter, edit or delete a form 1099-R -
Or enter 1099-r in the Search box located in the upper right of the program screen. Click on Jump to 1099-R
The 10% early distribution penalty is waived if the withdrawal was due to Covid-19.