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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Im asking this question for a friend of mine. He is self-employed

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I’m asking this question for a friend of mine. He is self-employed real-estate investor. At one point, he had over 30 houses in Nevada and California, and after the collapse of the housing market, he’s been short selling these properties. Last year, his net loss was over $3M from the short sales, and he expects another $2M of loss for this year. He recently took out $40K from IRA account to pay for some bills. He is wondering if he needs to pay any taxes on the $40K, since he is in zero tax bracket. How about the 10% penalty? Does he need to pay? Thank you for your advice.



Any time that you take money out of your traditional IRA account, you must report that as taxable income on your return. If he has enough deductions from other sources, it may end up that he does not owe taxes on that $40,000 or on the entire amount, but the amount does need to be reported as part of his taxable income.


If he was under the age of 59-1/2 at the time the withdrawal was made, then he will owe an additional 10% early withdrawal penalty. That penalty is paid separately from regular income tax, and so no deductions apply to the penalty amount.


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Thank youCustomer/p>



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