First time home buyer
I have a client that has taken funds out of her IRA for the purchase of a first time home. The custodian coded the 1099 as an early distribution. Is this correct or should I have the custodian change it? Also if so how would you handle that when you filed your tax return? Thank you
Permalink Submitted by Alan - IRA critic on Mon, 2013-09-30 22:55
The 1099R Inst indicate that Code 1 should be shown even if the taxpayer asserts that a qualified first home withdrawal was taken, so the custodian is correct. The taxpayer should override the 1 code by filing Form 5329 and indicating that exception code 09 in Part I of the form. The exception is limited to 10k lifetime. If the IRA is a Roth IRA, the cosiderations are more complex than for a TIRA.
Permalink Submitted by Peggy Fisher on Tue, 2013-10-01 14:49
I do not speak IRS very well. On the Form 5329, Part I is it #2 where you put code 09 and in the column to the right where you have put code 09 you put the amount of the distribution?Boy, if I am right… gee z .
Permalink Submitted by Lewis Young on Tue, 2013-10-01 15:04
Im sorry Peggy but Im not following you?
Permalink Submitted by tomd37 on Tue, 2013-10-01 15:57
lyoung,It might help if you go to the IRS site at http://www.irs.gov and pull up both the 5329 form and also its instructions and look at the instructions for Part I, line 2. You have to use code 09 on that line which makes in not subject to additional tax.
Permalink Submitted by Peggy Fisher on Tue, 2013-10-01 18:04
I did go to the IRS site and looked at the form before I asked the question. I was hoping it would say “Deduction for first time home buyer” but it doesn’t. It isn’t that clear. So I just wanted to confirm that I would need to make two entries. On the smaller line put 09 and the dollar amount to the right of it.Just thought it would have been easier to understand if the IRS had labeled it “Deduction for first time home buyer”.My attempt at humor did not translate well. Sorry.
Permalink Submitted by Alan - IRA critic on Tue, 2013-10-01 19:53
This example may help. Assume taxpayer withdrew 12k from a TIRA and the TIRA had a basis % of 10% due to non deductible contributions. IRA custodian does not know your basis and therefore would not enter the taxable amount and would check the box “Taxable Amount not determined”. Taxpayer completes Form 5329, Part I by entering the taxable amount of 10,800 (90% of 12k) on line 1. On line 2 enter the amount of line 1 that is NOT subject to the penalty and this would be 10k since that is the max for the first home exception. Enter exception code 09 on the short line to indicate that the exception claimed is the 10k first home exception. For line 3, subtract the 10k from 10,800 leaving 800 subject to the 10% penalty. The penalty of $80 goes on line 4. Some people have more than one exception that applies and if so the code should be 12, and although the 5329 Inst do not say so, it is best to provide an explanatory statement listing the amount that applies to each exception.