As of 2010, you can take a penalty-free Individual Retirement Account (IRA) distribution of up to $10,000 to pay for your first home or that of your children, grandchildren or spouse's children or grandchildren. When you take any IRA distribution, you should get a completed Form 1099-R from your IRA custodian early the following year, which you need to file with your tax return.
Alabama State Tax Extension
Significance
Normally, the Internal Revenue Service (IRS) charges you a 10 percent penalty on IRA distributions you take before you turn 59 1/2. However, the agency waives the fine if you withdraw money early to cover qualifying expenses--among them, purchasing or rebuilding your first home or that of your relative. The $10,000 cap is, as of 2010, a lifetime limit.
Types
The first-time home buyer exception only gets you off the hook for paying the 10-percent early distribution penalty. If you have a traditional, simplified employee pension (SEP) or savings incentive match plan for employees (SIMPLE) IRA, you owe income taxes on the entire amount of the distribution. If you have a Roth IRA, the distribution is entirely tax free as long as your account has been open for at least five years.
Reporting
As of 2009, your Form 1099-R should have a "J" in Box 7 if you took an early distribution from your IRA to make a first home purchase. If that is the case, you need to file a Form 5329. The form has a line where you can list a code to report the home buyer penalty exception. To find out exactly how to report this, look up "Additional Tax on Early Distributions" in the IRS's current Instructions for Form 5329. If you have a Roth IRA, you also need to file Form 8606--again, look for the current year's instructions as they change frequently.
File Tax Extension Forms 2013
Reporting Errors
If you receive a Form 1099-R that has a "1" in Box 7, contact your IRA custodian immediately and ask if he can file an amended 1099-R with the correct information. It is possible that your custodian was not aware that you took the distribution to pay for a first home. You could also simply go ahead and take the penalty exception and file a statement with your return to tell the IRS you qualify. If you go this route, expect the IRS to follow up and ask for proof.
Time Frame
You have until your filing deadline, including extensions, to file Form 5329 and, if necessary, Form 8606 with your tax return. You must also include your 1099-R with the rest of your income documentation. If you took an IRA distribution that did not qualify for the first-time home buyer exception, your custodian would have issued you a separate 1099-R to report the transaction.
Alabama State Tax Extension
Significance
Normally, the Internal Revenue Service (IRS) charges you a 10 percent penalty on IRA distributions you take before you turn 59 1/2. However, the agency waives the fine if you withdraw money early to cover qualifying expenses--among them, purchasing or rebuilding your first home or that of your relative. The $10,000 cap is, as of 2010, a lifetime limit.
Types
The first-time home buyer exception only gets you off the hook for paying the 10-percent early distribution penalty. If you have a traditional, simplified employee pension (SEP) or savings incentive match plan for employees (SIMPLE) IRA, you owe income taxes on the entire amount of the distribution. If you have a Roth IRA, the distribution is entirely tax free as long as your account has been open for at least five years.
Reporting
As of 2009, your Form 1099-R should have a "J" in Box 7 if you took an early distribution from your IRA to make a first home purchase. If that is the case, you need to file a Form 5329. The form has a line where you can list a code to report the home buyer penalty exception. To find out exactly how to report this, look up "Additional Tax on Early Distributions" in the IRS's current Instructions for Form 5329. If you have a Roth IRA, you also need to file Form 8606--again, look for the current year's instructions as they change frequently.
File Tax Extension Forms 2013
Reporting Errors
If you receive a Form 1099-R that has a "1" in Box 7, contact your IRA custodian immediately and ask if he can file an amended 1099-R with the correct information. It is possible that your custodian was not aware that you took the distribution to pay for a first home. You could also simply go ahead and take the penalty exception and file a statement with your return to tell the IRS you qualify. If you go this route, expect the IRS to follow up and ask for proof.
Time Frame
You have until your filing deadline, including extensions, to file Form 5329 and, if necessary, Form 8606 with your tax return. You must also include your 1099-R with the rest of your income documentation. If you took an IRA distribution that did not qualify for the first-time home buyer exception, your custodian would have issued you a separate 1099-R to report the transaction.