Tax preparation online

Tax Preparation online help - Using IRA for Home Purchase

This section of Tax Preparation Online help deals with tapping into IRA money making a penalty free IRA withdrawal to buy your first home. IRA owners can make a penalty free IRA withdrawal or IRA distribution for first time home buying.

Usualy IRA early withdrawal penalty

Generally, a 10% additional tax applies to IRA withdrawal distributions from an IRA prior to age 59 1/2. The 10% IRA early withdrawal penalty does not apply to IRA withdrawal distributions from an IRA if the taxpayer uses the money to pay qualified acquisition costs for a principal residence of a "qualified first time homebuyer" who is the taxpayer, the taxpayer's spouse, or a child, grandchild, or ancestor of the taxpayer or taxpayer's spouse.

Who is a qualified first time homebuyer?

A qualified first time homebuyer is someone who has had no ownership interest in a residence during the past two years. The term "qualified acquisition costs" means the costs of acquiring, constructing, or reconstructing a residence. Such term includes any usual or reasonable settlement, financing, or other closing costs.

The aggregate amount of the distribution for first time home buying cannot exceed a lifetime maximum amount of $10,000. The $10,000 lifetime ceiling on the new exception, together with the ordinary income tax rates on IRA distributions that would still apply to such distributions, is likely to minimize the impact of the new exception, even in starter home markets.