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Can I take an early IRA distribution AFTER my loan closes and

still apply the distribution for...
Can I take an early IRA distribution AFTER my loan closes and still apply the distribution for the first time home buyers exception? Publication 590 is not particularly clear on this.
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Answered in 21 minutes by:
10/15/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,195
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
Yours was a very good question and you are right the standard publication is not exactly clear.
IRA funds distributed to you must be used to pay qualified acquisition costs before the close of the 120th day after the day you received the distribution. You need to plan your purchase and your distribution carefully.
You will find the explanation in the IRS pub 590 but here is the wording:
First home. Even if you are under age 59½, you do not have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.




  1. It must be used to pay qualified acquisition costs (defined later) before the close of the 120th day after the day you received it.




  2. It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined later) who is any of the following.




    1. Yourself.




    2. Your spouse.




    3. Your or your spouse's child.




    4. Your or your spouse's grandchild.




    5. Your or your spouse's parent or other ancestor.






  3. When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions cannot be more than $10,000.



Robin D. :

So you have 120 days after you receive the distribution to use to to acquire but there is no provision saying that you can take the funds out after the acquisition in so many words.

Robin D. :

With the 120 day rule and the additional requirement (It must be used to pay qualified acquisition costs) you would not be allowed to buy the home then take a distribution because the acquisition had already been made.

Robin D. :

You may be allowed to get around the 120 day rule but the if the home had already been purchased and then later in teh same year a distribution was made, I would have to say no. The exception would not be allowed under audit.

Robin D. :

It bears reminding too that the exception is just for the first $10,000 of the distribution. $1000 of the penalty would be excepted.

Customer:

Could you clarify that last part? $1000 would be excepted?

Customer:

oh, 10% of $10k I got it

Customer:

Yes - unfortunately this seems like the right answer

Robin D. :

Just the first $10,000 of the IRA distribution is used for the exception so if you took out $20000 then you would still have a $1000 penalty if you could use the exception

Customer:

its a little open for interpretation, but I don't need that headache in an audit. I'm not likely to win that argument

Robin D. :

That is why I pointed out the $1000 that is saved with teh exception

Customer:

On your last point - thats $10k per person correct? So my wife and I could each take $10k and get a $2k total exception yes?

Robin D. :

Yes, each spouse is allowed their exceptions

Robin D. :

the $10,000 applies separately to each spouse, which means that the total for both is $20,000.

Customer:

OK thanks! Wrong answer for me, but sounds like the right interpretation. Just wanted to triple check :-)

Robin D. :

You are most welcome.
Your positive rating is always thanks enough.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 16,195
Experience: 15years with H & R Block. Divisional leader, Instructor
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Satisfied Customers: 16,195
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