Couple want to withdraw $10,000 for home. Husband has never owned a house. Wife owned home before marrying, then wanted to sell, house was on the market for over a year, finally sold in June of 2014. (at a loss). Since they are only taking $10,000 from IRA (not the $20,000 they would be eligible to take) will they have to pay the 10% penalty since she owned a home. She had not lived in it for over two years.
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She sold the home she owned in June of 2014. Two years is not up. so the 10% penalty exception does not apply.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR -
Does not apply?Comment
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The IRS rule about this is interesting. Here is what it says in Pub 590-B (on page 26):
The key phrase, I believe, is "no present interest in a main home." The wife owned a home, but if she didn't live in it for the last two+ years, then it was not her "main home." Accordingly, the couple should be exempt from the 10% early withdrawal penalty.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.
You are also correct that the H&W can each use up to $10,000 from their respective IRAs, as long as they haven't used any portion of the first-time homebuyer exception before. The $10,000 is a lifetime limit, per person.
Finally, make sure the funds would come from an IRA, not a 401(k) or other employer plan. The first-time homebuyer exception to the 10% penalty only applies to distributions from an IRA.Roland Slugg
"I do what I can."Comment
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Present interest...or Present Ownership Interest.
Good point. However, the Statutory Language, 26 USC 72(t)(8)(D) providesOriginally posted by Roland Slugg View Post
(D) First-time homebuyer; other definitions. For purposes of this paragraph -
(i) First-time homebuyer. The term "first-time homebuyer" means any individual if -
(I) such individual (and if married, such individual's spouse) had no present ownership interest in a principal residence during the 2-year period ending on the date of acquisition of the principal residence to which this paragraph applies, and
(II) subsection (h) or (k) of section 1034 3 (as in effect on the day before the date of the enactment of this paragraph) did not suspend the running
of any period of time specified in section 1034 3 (as so in effect) with respect to such individual on the day before the date the distribution is applied pursuant to subparagraph (A).
To me, the term "present ownership" interest would disqualify the spouse under the facts as given. After all, she would have been able to exclude gain on the sale of her former residence up to $250,000.00 and can't deduct any loss (2 years out of the last 5 prior to sale, etc).
As much as I like to push the envelope, I would pass on this opportunity as to the spouse of the taxpayer absent some other facts or circumstances not presented.Friends double; family triple. Don't buy an audit for yourself. If someone has to go to jail make sure it is the client. Remember it is only taxes, nothing important.Comment
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