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Ed Johnson
Ed Johnson, Tax Preparer
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I took a $40,000 withdrawl from my 401k that I used as my down

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I took a $40,000 withdrawl from my 401k that I used as my down payment on my primary residence. My taxes due for that withdrawl came to $16k for Federal and $6k for State. I currently have a payment plan but I am considering filing for BK. Can I get my payoff for Federal/State taxes lowered ?
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

Dear violetblue,

 

Thank you for your question.

 

Was this a first time home buyer situation?

 

Were any of the moneys used to pay for medical bills or education?

 

Do you have any tax debt that is 3 years old?

Customer: replied 5 years ago.

no, this is not my first time buying a home, but it was considered a first time home buying due to 3 years since I sold my last home (per lender)

 

no, none used for medical or education

 

yes, I have some taxes that I am still paying on that is 3y old. But not much.

Expert:  Ed Johnson replied 5 years ago.

Dear violet,

 

Thank you for your information.

 

1. You are a first time homebuyer for purposes of the first time homebuyer tax credit. So that tax credit, (maximum of 7500) will allow you to take a direct tax credit of 7,500 dollars which would offset at least offset about half of your federal requirement. In fact if you have any remaining tax debt, that will be aborbed first during this refund season.

 

2. You would not be considered a first time home buyer for the purposes of being able to eliminate the penalty tax for the 401(k) early withdrawal.

 

3. If you file bankruptcy, generally, only tax debt that is 3 years old would be included in the tax debt.

 

Other than that, if you could somehow

 

 

Customer: replied 5 years ago.

How do I apply for the direct tax credit for $7,500 ?

 

your answer did not get fully recorded. The typing stopped at "Other than that, if you could somehow..........

Expert:  Ed Johnson replied 5 years ago.

Dear violet,

 

Thank you for getting back to me.

 

I had meant to say that if it has been 60 days or less, and you could some how swing it, you can put some money back to replace what you withdrew. If you replace it in less than 60 days, you may be able to treat that portion as a rollover. normally you have to designate it first, but at tax time when you fill out you tax return you can make the declaration if you did not do it earlier. If it has been more than sixty days, it is too late.

 

To apply for the first time homeonwers tax credit, you will need this form. it is currently in Draft stage but you can still use it to figure your credit. http://www.irs.gov/pub/irs-dft/f5405--dft.pdf

 

Read about the credit here: http://www.federalhousingtaxcredit.com/faq.php#3

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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