New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
Bankrate.com
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Equity
Auto CDs &
Investments
Retirement Checking &
Savings
Credit
Cards
Debt
Management
College
Finance
Taxes Personal
Finance

Columns: Tax Talk
George Saenz, CPA   Expert: George Saenz, CPA
Tax Talk
You have leeway since the rental property wasn't your main home
Tax Talk

Tapping an IRA to pay closing costs
 

Dear Tax Talk,
I own a home that's been rented for two years and seven months. I've only rented during that time as well. I am now purchasing a second home that will be my primary residence. Can I take any money from my IRA to help pay closing costs without incurring the 10 percent penalty? 
-- Chad

- advertisement -

Dear Chad,
The tax rules allow you to withdraw up to $10,000 from an IRA to purchase a first home and avoid the 10 percent penalty that usually applies to withdrawals when you are younger than 59½ years of age. You still have to pay income taxes on the distribution.

To qualify for treatment as a first-time home buyer distribution, the distribution must meet all the following requirements.

Distribution requirements
1. It must be used to pay qualified acquisition costs before the close of the 120th day after the day you received it.
2. It must be used to pay qualified acquisition costs for the main home of a first-time home buyer who is any of the following.
 
a. Yourself.
b. Your spouse.
c. Your or your spouse's child.
d. Your or your spouse's grandchild.
e. Your or your spouse's parent or other ancestor.
3. When added to all your prior qualified first-time home buyer distributions, if any, total qualifying distributions cannot be more than $10,000. If you're married and both are first-time home buyers, each spouse can withdraw $10,000 penalty free.

Qualified acquisition costs include the following items:

  • Costs of buying, building or rebuilding a home.
  • Any usual or reasonable settlement, financing or other closing costs.

Generally, you are a first-time home buyer if you had no present interest in a main home during the two-year period ending on the date of acquisition of the home that the distribution is being used to buy, build or rebuild. If you are married, your spouse must also meet this no-ownership requirement.

Since the rental property has not been your main home for the time that you have owned it, you can withdraw the funds penalty-free to buy the second property that will be your main home.

Bankrate.com's corrections policy -- Posted: June 28, 2007
Read more Tax Talk columns
Ask a question

Compare Rates
NATIONAL OVERNIGHT AVERAGES
30 yr fixed mtg 4.45%
48 month new car loan 3.77%
1 yr CD 0.89%
Rates may include points
Mortgage calculator
See your FICO Score Range -- Free
How much money can you save in your 401(k) plan?
Which is better -- a rebate or special dealer financing?
VIEW MORE CALCULATORS
FINANCIAL LITERACY
Rev up your portfolio
with these tips and tricks.
- advertisement -
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here.

Bankrate.com ®, Copyright © 2014 Bankrate, Inc., All Rights Reserved, Terms of Use.