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The distribution from a deferred pension account (the money in the account has not been taxed yet) is added to income in the year of the distribution. The tax is applied in that year no matter what you do with the money (like home purchase).
Some exceptions apply for the extra 10% penalty (when you are not 59 1/2) but the tax is applied and no exception from taxation is offered.
In short, yes, you still have to pay tax on a distribution even if you purchase a home with the funds.
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