IRA first time home buying

[ILLMAS]

TP opened an IRA account with $8K back in 2012, the amount grew to $23K and TP withdrew $22K in 2021.   $10K was used for a down payment and the other amount was kept.  To calculated the early penalty withdraw, I would need to enter the following on form 8606:

Total IRA Withdrawal:  $22K

IRA Basis -$8K

Taxable Amount: $14K

And to calculate the early withdraw penalty

Taxable Amount: $14K

First Time Home:  -$10K

Penalty: $400

This is the first time I see someone take more then $10K to buy a house and just want to make sure I am accounting for it properly.

Thanks

 

 

[Gail in Virginia]

Was this a traditional IRA where the $8,000 originally contributed was deducted from the taxes for that year?  I don't think it counts as basis if it was originally deducted.

[ILLMAS]

49 minutes ago, Gail in Virginia said:

Was this a traditional IRA where the $8,000 originally contributed was deducted from the taxes for that year?  I don't think it counts as basis if it was originally deducted.

Good question, I had not thought about that, I will request a copy.

Thanks

[grandmabee]

I don't think you could put 8,000 in an regular IRA back in 2012.  Can't even do that now.  Maybe over several years?

anyway it is all taxable but only the amount less 10,000 is subject to the 10% penalty.  12,000 subject to penalty.

[Pacun]

12 hours ago, grandmabee said:

I don't think you could put 8,000 in an regular IRA back in 2012.  Can't even do that now.  Maybe over several years?

anyway it is all taxable but only the amount less 10,000 is subject to the 10% penalty.  12,000 subject to penalty.

Yes, TP could have opened an IRA in April 10, 2012 and split $4,000 for 2011 and $4,000 for 2012. 

Your are right, It seems that this taxpayer will pay penalty on $12,000 and Federal taxes on $22,000. 

[TexTaxToo]

And of course ask about other possible exceptions to the penalty (e.g., education expenses, birth of a child, adoption, unemployment/health insurance, disability, or a large amount of medical expenses).

[ILLMAS]

I’m not in the office today, but I kind of remember the code on the 1099R was J, I just looked it up and it’s for a Roth IRA, so their 2012 tax return shouldn’t matter and the basis of $8K is fine?

[Pacun]

If it is a Roth IRA, nothing is taxable and it makes no difference if they invested their money in a first home and spent it at the local casino.

 

[grandmabee]

No mention of code J

[TexTaxToo]

1 hour ago, Pacun said:

If it is a Roth IRA, nothing is taxable and it makes no difference if they invested their money in a first home and spent it at the local casino.

 

Not so fast!  Code J is an early distribution.  Assuming that is correct and they are under 59 1/2, it is not a qualified distribution.  The basis can be withdrawn tax and penalty free, but the earnings are taxable and subject to the 10% penalty.  (The five-year holding period is not relevant.)

Except that the $10,000 for first home IS a qualified distribution, so no tax and no penalty for that portion of the earnings.

[ILLMAS]

Hello all, just wanted to confirm it is code J.

Thanks