Qualified Acquisition Costs
Hello everyone,
I hope I can get help from experienced folks here.
In regards to application First time homebuyer exception for early distributions from traditional IRA fund, do the following fall under qualified acquisition costs:
– home inspection fees;
– lawyer/ real estate agent fees.
To make it more interesting I would like to add the fact that final settlement never happened. Due to vague circumstances bank did not release funds, contract to buy a house expired and a seller sold the house to another person.
Thank you all.
Alex
Permalink Submitted by Alan Spross on Sun, 2011-01-09 20:19
They would if the first home was acquired. But the penalty exception depends on the completion of the acquisition, not just the intent to complete the acquisition.
While you must apply the IRA distribution within 120 days of receiving it, since many deals fall through there is a companion provision that gives you 120 days to roll the funds back to your IRA and you are not charged with a rollover under the one rollover per 12 month limitation. That eliminates the tax and penalty, but does no good with respect to the amount lost in the purchase effort.
You might have recovered the costs if you had a contingency clause included in your contract that might have been applied to some or all of these costs. But if you cannot recover the funds or otherwise replace the funds to roll back to the IRA within 120 days, you are out of luck with respect to both the ordinary income tax on the IRA distributions and the 10% penalty