Using IRA Funds as a First-Time Homebuyer

It's no secret that home prices are currently at historically high levels--and mortgage interest rates remain relatively high when compared with recent years.  For many first-time homebuyers, accessing IRA funds may be the only option for making home ownership a reality.  Taxpayers who qualify as first-time homeowners can withdraw up to $10,000 in IRA funds without penalty to help with buying a home (the funds are still taxable as ordinary income).  What may be surprising is that a taxpayer can qualify as a first-time homeowner if they have not owned their principal residence for at least two years.  That means a client can qualify even if they have owned a home in the past--so long as they have not owned their principal residence in the prior two-year period.  That said, the $10,000 limit is a lifetime limit, not a per-residence limit.  Married taxpayers can use up to $20,000 in penalty-free IRA funds for a home purchase, assuming each spouse has their own IRA and each spouse qualifies as a first-time homebuyer.  The funds must be used for home purchase-related expenses within 120 days of the withdrawal (the funds can also be put back into the IRA if the purchase is delayed or falls through).  For more information on the exceptions to the IRA early withdrawal penalty, visit Tax Facts Online. Read More: Link to Q3677.  Note: Q is updated.