SEPP First Time Home Down payment with Rental

[vegasbillea]

This was posted on anther board with no response.
Hello everyone, hope your tax season went well,
I have a client who is self employed, and contributes to his SEPP IRA,
He is under 59 1/2 years old, and would like to use his SEPP as a first time home buyer down payment ($10,000). Issue -
he owns a residential rental that has been rented out for the last 8 yrs, question does owning a residental rental preclude him
form using his SEPP money. One last bit of information, he himself as been renting for the last 8 years, so has not owned a primary residence to live in during the 8 years.

[Burke]

What does the rental property have to do with it? Is that the property he wants to move into?

[Roland Slugg]

The rental property he owns is not a bar to using his IRA for the purpose you described.

It may be unwise to to that, however, because even though up to $10K withdrawn from his IRA will qualify for an exception to the 10% early withdrawal penalty, all the funds withdrawn from his IRA will still be subject to tax. If it were me, I would look for another way to finance the purchase of my house.

[vegasbillea]

Thanks for the Response

Thank you both, Roland and Burke for your responses,
In response to Burke, the reason the question was asked was because his rental is a residence and the question came up because
he still owns it. He was curious if there would be a conflict in the interpretation of the meaning "Residence" with owing a residencal rental and buying a primary residence.
Roland- you are correct with what you stated about the tax issue; this tax issue has been discussed with him.
Again, I want to thank the both of you for your responses.

[vegasbillea]

Burke-Response

I reread your response again, sorry, late night, but the answer to your question is No, he owns a residential rental in one state and wants to buy a primary residence in another state where he lives. He has not own a primary residence in over 8 yrs.

[TAXNJ]

Interesting

Interesting scenario. Let us know your decision.

This may or may not relate to your scenario.

http://realtytimes.com/trending1/item/27263-20140122-defining-what-your-principal-residence-is

[Lion]

A long as it was not a residence to HIM during the appropriate time frame. If it was a rental property to him it doesn't matter that the renters use it as a residence for themselves. What matters is that he did not own HIS own residence and use it as HIS residence during the time frame.

[vegasbillea]

Thanks to all of you who replied

I want to give thanks to TAXNJ and Lion for their recent replies.
I have printed out the link you gave TAXNJ and will be reviewing it, again thanks for the help.
Lion, I want to thank you for your reply and the information contained in your reply.
In summation, I felt that the client could use his SEP IRA for the first time homebuyer down payment without the penalty, but must pay the tax.
Again, thanks to all of you who replied.