First-Time Homebuyers Exception Early IRA Withdrawal

[ValRose]

Have 10 days to figure this out and hopefully amend a 2012 return!
We all know you can't have owned a main home within 2 years prior. What EXACTLY is "main" home?...
Pub 590-B says:
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.
Well these clients owned part of their MOM'S home, which they'd done to help her to purchase the home.
They never lived in that house.
They didn't use the IRA exception to purchase it--They've never used their $10 or $20K Lifetime Max Exception.
But they were part owners of it within 2 years prior of finally purchasing their OWN new home!
Does that disqualify them from the exception?? It surely was not their residence...
Extra Hopeful--If anyone can cite the actual Reg or any ruling or tax cases that would be SOooO appreciated!
THANKS!!!

[ATSMAN]

Have 10 days to figure this out and hopefully amend a 2012 return!
We all know you can't have owned a main home within 2 years prior. What EXACTLY is "main" home?...
Pub 590-B says:
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.
Well these clients owned part of their MOM'S home, which they'd done to help her to purchase the home.
They never lived in that house.
They didn't use the IRA exception to purchase it--They've never used their $10 or $20K Lifetime Max Exception.
But they were part owners of it within 2 years prior of finally purchasing their OWN new home!
Does that disqualify them from the exception?? It surely was not their residence...
Extra Hopeful--If anyone can cite the actual Reg or any ruling or tax cases that would be SOooO appreciated!
THANKS!!!

If they NEVER used their mother's home which they had part interest as their "Principal Residence" within the 2 years of purchasing their "Principal Residence" they are ok.

This is similar to a situation where aged parents get a life estate and change the deed to their kids (some of them may still be college students, living in apartments).

[ValRose]

If they NEVER used their mother's home which they had part interest as their "Principal Residence" within the 2 years of purchasing their "Principal Residence" they are ok.

This is similar to a situation where aged parents get a life estate and change the deed to their kids (some of them may still be college students, living in apartments).

Thanks SO much--And I sure hopeful you're right! But I just read this that MasterTaxGuy had quoted on an earlier similar thread...

"...Statutory Language, 26 USC 72(t)(8)(D) provides

(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..."

I'm sadly concerned about the fact the Reg says, "...ownership interest in "A" prinicipal residence" rather than "Their" principal residence...
Maybe they intended it to at least include ancestors & descendants since those homes could have theoretically also used the exception (that is, they could have previously used the 1st-time HB exception to help buy their parent's house).

Any additional thoughts now that you see the Reg?...

[ValRose]

Hopeful for more Responses--This is a tough one!...

Only 10 days to amend hopeful and so thankful for any and all input!!

[TaxGuyBill]

I don't think you need to be concerned with the word "a" rather than "their". In my opinion, it is referring to their own principal residence.

From a grammatical standpoint, writing "a" principal residence is better than writing "his/her/their" principal residence, or the awkwardness of phrasing it differently.

[mastertaxguy]

Ira penalty exclusion-first time home buyer distribution

1. Originator of thread perhaps is overly concerned about this issue.
2. I think this is and remains an RTFM issue. I don’t think this is a tough one.
3. Publications are not the manual nor are they substantial authority.
4. I am not providing and have NOT EVER provided any information with the intent of becoming a preparer of any return (this post or others). This applies in my view to all of us on this forum, and especially if we respond to private messages.
5. Every scenario depends on facts and circumstances. And the comfort zone of the tax professional.
6. Sec. 72(t)(8) provides the exception to the 10% penalty for early retirement distributions from an IRA (and only an IRA) used for first time homebuyers of a principal residence [no use of the term main home].
7. Sub paragraph (D)ii of this subsection provides:
(ii) Principal residence. The term "principal residence" has the same meaning as when used in section 121.
8. Section 121, of course, is the provision excluding gain from the sale of a principal residence.
9. Reg. 1.121-1 (b) (1) provides:
(1) In general. Whether property is used by the taxpayer as the taxpayer's residence depends upon all the facts and circumstances.
10. Reg. 1.121-1(b)(2) provides in part:
In addition to the taxpayer's use of the property, relevant factors in determining a taxpayer's principal residence, include, but are not limited to--
(i) The taxpayer's place of employment;
(ii) The principal place of abode of the taxpayer's family members;
(iii) The address listed on the taxpayer's federal and state tax returns, driver's license, automobile registration, and voter registration card;
(iv) The taxpayer's mailing address for bills and correspondence;
(v) The location of the taxpayer's banks; and
(vi) The location of religious organizations and recreational clubs with which the taxpayer is affiliated.
[Astute readers this far might think of tax home issues, but that is different post].
11. It is true that Section 72(t)(8)(A) provides:
The term "qualified first-time homebuyer distribution" means any payment or distribution received by an individual to the extent such payment or distribution is used by the individual before the close of the 120th day after the day on which such payment or distribution is received to pay qualified acquisition costs with respect to a principal residence of a first-time homebuyer who is such individual, the spouse of such individual, or any child, grandchild, or ancestor of such individual or the individual's spouse.
12. IRC 72t (8)(B) provides:
Lifetime dollar limitation. The aggregate amount of payments or distributions [from an IRA] received by an individual which may be treated as qualified first-time homebuyer distributions for any taxable year shall not exceed the excess (if any) of -
(i) $10,000, over
(ii) the aggregate amounts treated as qualified first-time home buyer distributions with respect to such individual for all prior taxable years
13. The scenario provided is that the taxpayer had an interest in a home which was NOT their principal residence. The scenario states the TP’s did not use that home as their abode. To the extent it matters, it does not state that the occupant was a dependent (which probably would create another issue). The scenario states the TP’s did not use an IRA distribution for that purchase. Thus the lifetime limit does not appear to at issue based on the scenario.
14. My own view is I would not have gone any further than that. But this isn’t my return. What I may do may not be in the comfort zone of others.

[ValRose]

Thanks you guys are awesome!!

Thanks so much everyone! You've set my mind at ease and saved my clients over $2000 (California penalty too) :-)

[ValRose]

MasterTaxG--Special thanks And Question...

thanks SO much for going to all that trouble for me. After tax season I'm going to ask you how you find the Regs so easily!
But a quick question- What does RTFM stand for??
PS fully understand you (and no one on forum) is acting as a preparer; wise point :-)

[JohnH]

thanks SO much for going to all that trouble for me. After tax season I'm going to ask you how you find the Regs so easily!
But a quick question- What does RTFM stand for??
PS fully understand you (and no one on forum) is acting as a preparer; wise point :-)

Based on some things I recall learning during my military service many years ago, I think he's suggesting that reading the manual is a good idea.

[mastertaxguy]

Primary sources-code and regulations

thanks SO much for going to all that trouble for me. After tax season I'm going to ask you how you find the Regs so easily!
But a quick question- What does RTFM stand for??
PS fully understand you (and no one on forum) is acting as a preparer; wise point :-)

1. Tax Materials (the Tax Book folks) offer a web version of their products which, if you by the "plus size" includes access to the Internal Revenue Code and IRS Regulations.
2. Printed copies can be acquired from several commercial publishers CCH/RIA.
3. There are other on line sources besides TTB, like CCH, RIA, Parker Tax Research and such.

[Lion]

And, is it Columbia University that has the IRC online with free access? And, I think you can access all Tax Court cases online. I use CCH's IntelliConnect for research, including all authoritative sources.

[Roland Slugg]

Have 10 days to figure this out and hopefully amend a 2012 return!

I'm curious to know why THAT was in the OP, at the very beginning. Did the IRA distribution and purchase of the T/P's house occur in that year? And the exception to the 10% penalty was NOT utilized in THAT year? And filing an amended return for that year is being considered?

If so, I don't believe you have 10 days, to April 18, 2016, to file an amended return for the year 2012. You have until April 15, 2016 ... three years after the due date of the 2012 return.

Some might say that since April 15, 2016 is a holiday, that it extends ANY deadline falling on that date to April 18, 2016. I could be wrong, but I don't think it does. April 15, 2016 is not a federally recognized holiday, but a local holiday observed in Washington DC only.

Anyone planning to file an amended return for the year 2012 would be wise, IMO, to file it NLT April 15, 2016 ... and to play it safe, a couple days before that.

[mastertaxguy]

Research sources-primary materials

And, is it Columbia University that has the IRC online with free access? And, I think you can access all Tax Court cases online. I use CCH's IntelliConnect for research, including all authoritative sources.

Cornell University has the IRS code. It is free; I donate every year a nominal $100.00. I can't decide if the $100.00 is a charitable donation, a business donation, an employee business expense, an above the line deduction, or all of them. Might even be a medical expense as it helps me keep my sanity at times. So maybe all five. Cornell doesn't have a link to IRS regs.

One can get to the "official" government IRC and regulations via the IRS web site. I have used that in the past in a pinch, but the private for profit service I am using (NOT RIA, Not CCH, NOT TTB plus) works just fine and has decent editorial content.
I tried searching first time home buyer and IRA penalty exception and got a lot of hits; maybe too many.

[TaxGuyBill]

Cornell doesn't have a link to IRS regs

Sure they do.

https://www.law.cornell.edu/cfr/text/26/chapter-I