Avoiding 10% early withdrawal if distribution after closing date

[jlakunle]

Can I avoid 10% early withdrawal from IRA if I used the money to purchase a primary residence (have not owned a home in more than 2 years) and if I withdrew the money after the closing date?

[AnnetteB6]

The dates of the transactions (your closing date and the date of distribution from the IRA) are not included as part of the tax return.  However, if the withdrawal was done after the closing date, you would not be considered to be using the money to acquire the home, so the exception would not apply.  

@jlakunle

[jlakunle]

I borrowed money from my emergency fund to pay for closing due to the fact that my retirement funds were not available for administrative policies. With that said, I was not eligible to withdraw until after the closing. Thus, the IRA funds were used to replenish the funds I borrowed for the closing. Would this administrative delay warrant allowance of the delayed withdrawal?

[macuser_22 · Accepted solution]

See IRS Pub 590B

https://www.irs.gov/publications/p590b#en_US_2019_publink1000230922

It says the "money must be used..." not that the exact same dollars must be used.  Money is fungible.

First home.

Even if you are under age 59½, you don't have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.

1. It must be used to pay qualified acquisition costs (defined next) before the close of the 120th day after the day you received it.

2. It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined below) who is any of the following.

   1. Yourself.

   2. Your spouse.

   3. Your or your spouse's child.

   4. Your or your spouse's grandchild.

   5. Your or your spouse's parent or other ancestor.

3. When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions can't be more than $10,000.

If both you and your spouse are first-time homebuyers (defined later), each of you can receive distributions up to $10,000 for a first home without having to pay the 10% additional tax.

Qualified acquisition costs.

Qualified acquisition costs include the following items.

• Costs of buying, building, or rebuilding a home.

• Any usual or reasonable settlement, financing, or other closing costs.

First-time homebuyer.

Generally, you are a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement.

Date of acquisition.

The date of acquisition is the date that:

• You enter into a binding contract to buy the main home for which the distribution is being used, or

• The building or rebuilding of the main home for which the distribution is being used begins.

If you received a distribution to buy, build, or rebuild a first home and the purchase or construction was canceled or delayed, you could generally contribute the amount of the distribution to an IRA within 120 days of the distribution and not pay income tax or the 10% additional tax on early distributions. This contribution is treated as a rollover contribution to the IRA.

[Jewel14]

What part in the 1040 can we report this type of withdrawal? On the distribution code selection, it has first time homebuyers option but only if withdrawn from a Roth IRA. What if I withdrew it from a traditional IRA? How do I prove that this is a first time house purchase?

[macuser_22]

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@Jewel14 wrote:

What part in the 1040 can we report this type of withdrawal? On the distribution code selection, it has first time homebuyers option but only if withdrawn from a Roth IRA. What if I withdrew it from a traditional IRA? How do I prove that this is a first time house purchase?

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The 2nd part of the interview will ask if "we can lower your tax" and give a list of possible exemptions that includes first home.

No proof is necessary on your tax return.