There is a particular tax benefit enacted as part of the '97 tax legislation to help people become homeowners. The new law lets individuals receive distributions from their IRAs to pay up to $10,000 of first-time homebuyer expenses without incurring the 10% early withdrawal penalty that usually applies to withdrawals from an IRA before age 59 1/2. (The regular income tax on the distribution still applies.)

There are some things you should know about this new law. One is that a "first-time homebuyer" doesn't really have to be a first-time homebuyer, since the law defines "first-time homebuyer" simply as someone who has not owned a home for two years. So instead of benefiting just "first-time homebuyers," the law also helps "not-recent" homebuyers. Also, you can take advantage of the provision even if you are not the first-time homebuyer, since the first-time homebuyer can be the IRA owner, his or her spouse, or any of their children, grandchildren or ancestors.

The $10,000 limit is a lifetime limit on the amount of withdrawals that can be pulled out of the IRA penalty free under the first-time homebuyers provision. Although the law isn't clear, it seems permissible that, for example, a husband and wife helping one of their children scrape together a down payment can each withdraw up to $10,000 from their respective IRAs without incurring any penalty for early withdrawal.
 

This document contains general tax information and is provided as a service.  For details and specific assistance in applying the general information here, please consult with your accountant or professional business and tax advisor.