First Time Home Penalty Exception
Hello,
An IRA owner under 59 ½ wants to use money from the IRA to purchase a home using the first time home penalty exception. The home is being purchased for his father. Is the first time homebuyer test done on the IRA owner, even when purchasing a home for someone else? Or in this case, is it done on the father?
The IRA owner does not qualify as a first time home buyer, but the father does. Thoughts? Below is from Pub 590.
If both you and your spouse are first-time homebuyers (defined later), each of you can receive distributions up to $10,000 for a first home without having to pay the 10% additional tax.
Any feedback would be greatly appreciated. Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2025-02-26 13:06
The first time homebuyer can be the IRA owner’s spouse, child, grandchild, or parent. In this case, only the parent needs to qualify as a first time homebuyer. The IRA owner does not need to qualify.
The penalty waiver is claimed on Form 5329, using exception code 09 on line 2. Note that the 10,000 penalty free amount is a lifetime total, therefore after using the 10,000 for parent’s home purchase, the owner has exhausted the life time limit.
The IRA owner should note that if the acquisition is delayed or falls through after taking the distribution, the amount can be rolled back to the IRA within 120 days (not the usual 60) of the distribution. Despite this extended time, I would avoid taking the distribution too soon.