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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29535
Experience:  Taxes, Immigration, Labor Relations
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Can ESOP be used to pay payment on a new built and avoid

Customer Question

can ESOP be used to pay for down payment on a new built and avoid large tax penalties.
JA: Thanks. Can you give me any more details about your issue?
Customer: 50 year o;d recieving esop money and wants to use it to fund down payment on ane built homwe and not pay all the taxes goverment
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Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

An employee stock ownership plan (ESOP) is an IRC section 401a qualified defined contribution plan that is a stock bonus plan or a stock bonus/ money purchase plan. An ESOP must be designed to invest primarily in qualifying employer securities.
Beneficiaries of ESOP plans are taxed in the year that amounts are distributed or made available to them. When you receive property from an ESOP, such as stock, the amount is usually based on the property's fair market value.

Expert:  Lev replied 1 year ago.

So - regardless how the money are used - that distribution will be taxable for the payee.

Thus

- can ESOP distribution be used to pay for down payment on a new house - yes.

- will that allow to avoid taxable income - no;

So what to do to avoid large taxable income? - spread distribution over several years.

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