Irs First Time Home Buyer

[BOB W]

I have a client that is married. They did not qualify for FTHB because one spouse did not qualify due to owning a home within the time peroid. The spouse that would of qualified withdrew $10,000 from a IRA and is asking if the $10,000 qualifies for the penalty exclusion.

Does FTHB restriction also apply to IRA distributions?

[erchess]

TTB 1040 Ed 13-3

says that a first time home buyer is an individual who has not owned a principle residence for two years. So I would be caught saying that the spouse is irrelevant even with both spouses owning the home together.

[New York Enrolled Agent]

Assuming I understand this question correctly, I think the Tax Court would disagree with Erchess. A snip from Olup TC Summary 2005-183. (Caps added for emphasis)

[start] Petitioners' argument overlooks the plain language of section 72(t)(8)(D). Section 72(t)(8)(D)(i) refers to a first- time homebuyer in the singular form as any individual. It further provides that, in the context of an individual that is married, such individual's spouse ALSO MUST satisfy the first- time homebuyer test as an individual. It follows therefrom that the language of section 72(t)(8)(D)(i) requires that BOTH owners of the property must individually satisfy the first-time homebuyer test. In other words, EACH individual homebuyer in a marital unit must have had no prior ownership interest in a principal residence. The legislative history of section 72(t)(8)(D) further supports this interpretation. According to the House and Senate reports: “The bill requires that the spouse of the individual ALSO meet this requirement as of the date the contract is entered into or construction commences.”[end]

[OtisMozzetti]

Publ. 590: spouse must meet no-ownership requirement

I have a client that is married. They did not qualify for FTHB because one spouse did not qualify due to owning a home within the time peroid. The spouse that would of qualified withdrew $10,000 from a IRA and is asking if the $10,000 qualifies for the penalty exclusion.

Does FTHB restriction also apply to IRA distributions?

Traditional:
I looked in Publ. 590 where it talks about exceptions to the penalty on early distributions from traditional IRAs. It says that "If you are married, your spouse must also meet this [2-year] no-ownership requirement".

Roth:
Also, there is a chart in Publ. 590 explaining what is a qualified distribution, for purposes of determining whether a distribution from a Roth IRA is taxable. It says that the first-time homebuyer rule is the same as with the penalty exception on traditional IRAs. Additionally, of course, it must have "been at least 5 years since the beginning of the first year for ( or "in"**?) which you set up and contributed to a Roth IRA". There is a $10,000 lifetime limit on the amount of Roth IRA distribution which may be non-taxable because of qualified distribution to a first time homebuyer. There is no information in that publication stating how the $10,000 lifetime limit would be applied if one were married to someone who had taken such a qualified distribution at some previous time during the spouse's lifetime.

**- the words "in" and "for" are used at two different places in Publ. 590

[erchess]

I stand corrected

but in my opinion the passage in TTB I cited is poorly written.

[BOB W]

It looks like the FTHB has a 3 yr rule and an IRA has a 2yr look back. Is that correct?

[DonPriebe]

Correct but not complete

It looks like the FTHB has a 3 yr rule and an IRA has a 2yr look back. Is that correct?

That's correct, but not confusing enough. A "first time homebuyer" is defined with a three year look back for the Form 5405 credit, a two year look back for the IRA penalty exception, and a one year look back for the DC First-Time Homebuyer Credit (Form 8859).