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Bill
Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3151
Experience:  EA, CEBS - 35 years experience providing financial advice
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Im a minister, my wife owns a small business...this year we

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I'm a minister, my wife owns a small business...this year we anticipate having a total taxable income of 0.00 after deductions. In 2009 I borrowed $36,000. from my 403b retirement fund, I have a current payoff of $23,000. If I default on that loan I'm taxed on that as regular income plus a 10% penalty. We purchased a home this year with $25,000. for the down payment. Would the down payment deduction offset the tax on the $23,000 and would the resulting offset negate the 10% early withdrawal tax penalty?
Submitted: 5 years ago.
Category: Tax
Expert:  Bill replied 5 years ago.

Bill :

Unfortunately, there is no deduction for a down payment on a home. So the only deductions that might be available if you can itemize are deductions for mortgage interest, real estate taxes, local taxes, charitable deductions, and other miscellaneous deduction. Itemizing will only benefit you if the total deductions exceed the standard deduction for a married couple of $11,600.

Bill :

There are some exceptions to the 10% penalty but these are limited ( for example, after separation from service after age 55, for certain medical expenses, for permanent disability, etc).

Customer:

So the $23,000. would be considered "regular" income? The penalty would be on the total amount or the

Bill :

Yes, the $23,000 would be taxed as ordinary income and the 10% penalty would be on the full amount. So the penalty would be $2,300.

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