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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
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Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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Does a timeshare count as home ownership to the IRS? Can a

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Does a timeshare count as home ownership to the IRS? Can a first-time homebuyer withdraw $10k from an IRA toward a down payment if they have a timeshare? It does not qualify as a vacation home based on this information:


http://homeguides.sfgate.com/tax-advantages-owning-time-share-7919.html


"If the timeshare is used for personal use more than 14 days"

Submitted: 11 months ago.
Category: Tax
Expert:  taxmanrog replied 11 months ago.

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

 

You are correct in your reading that if you have more than 14 days in the location it could be treated as a home. This just means that you are able to deduct the real estate tax and mortgage interest. It does not mean that it can be treated as your principal residence and have the benefits that come with owning a principal residence.

 

The 1997 Taxpayer Relief Act put in place the provision that you are referring to, which allows a taxpayer to withdraw $10,000 without having to pay the Internal Revenue Code §72(t) tax. This $10,000 withdrawal for first-time homebuyers is a lifetime limitation. The home that you purchase must be your principal residence. While a timeshare could qualify as a home if you use it more than 14 days, I do not think that it could qualify as your principal residence.

 

In summary, while a timeshare can qualify as a home, it probably cannot qualify for the $10,000 exclusion from the IRA Early Withdrawal penalty (the §72(t) excise tax), because unless you bought all 52 weeks, it won't be your principal residence.

 

I hope this answers your questions! If you have any more, please feel free to ask! If you have found my answer helpful, please rate me highly! I would appreciate it!

 

Thanks again! Have a great week!

 

Roger

taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 377
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
taxmanrog and 4 other Tax Specialists are ready to help you
Customer: replied 11 months ago.

Great. Just to be certain: one can still qualify for the $10k exclusion as long as they do not or have not recently owned a primary residence (and have not used the exclusion previously)?

Customer: replied 11 months ago.

I found the text. Thanks for also sharing the name of the law.


‘‘(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,

Expert:  taxmanrog replied 11 months ago.

The 10% penalty doesn't apply to a "qualified first-time homebuyer distribution" from an IRA (section 72(t)(2)(F)) if the distribution is used within 120 days of its receipt to pay qualified acquisition costs associated with the first-time purchase of a principal residence. The homebuyer may be the IRA holder or spouse, child, grandchild or ancestor (section 72(t)(8)(A)).

 

The term principal residence means the same as it does for calculating the excludability of gain on sale under section 121 (section 72(t)(8)(ii)).

 

 

Section 72(t)(8)(C) defines qualified acquisition costs to include the expenses of acquiring, constructing or reconstructing a residence, as well as any usual or reasonable settlement, financing or other closing payments.

 

Please note that the term first-time homebuyer is a misnomer in that it does not preclude previous home ownership. Instead, it holds that the homebuyer (and spouse, if married) cannot have had an ownership interest in a principal residence during the two-year period ending on the date of acquisition (section 72(t)(8)(D)(i)(I)).

 

So as long as the $10,000 is used to pay for the downpayment and closing costs on a home and that you had not owned a principal residence within the past two years, and it is done within 120 days of the withdrawal from the IRA, you can use the funds without paying the 10% excise tax for early withdrawal.

 

I hope this helps! If you have any more questions, just ask away!

 

Thanks again!

 

Roger

taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 377
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
taxmanrog and 4 other Tax Specialists are ready to help you

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