Housing Re-Virginization

I found out something interesting this past week.

Did you know that if you sell your primary residence and are out of the market for 2 years that the IRS considers you a "first-time homebuyer" again?

That's right! I read about this online and called the IRS to confirm that it is correct.

I was directed to Publication 590, page 55

"Generally, you are first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquistion of the home which the distribution is being used to buy, build or rebuild. If you are married, your spouse must also meet this no-ownership requirement"

This means that if you sold your house more than 2 years ago, you can take up to $10,000 out of your IRA with no penalties (you do still have to pay income taxes). If there's two of you buying a house, each person can take out $10,000!

The big caveat on this is that

"When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions cannot be more than $10,000."

So, if you already dipped into that well the first time you bought a house, that penalty free withdrawl is no longer available. However, if you only took out $5,000 from your IRA the first time you bought a house, you could take out another $5,000 for the next house.

This is also only for IRA accounts. You cannot do this if you have a 403b or 401k (those plans often allow you to borrow against your balance if you need the money).

Given that I didn't use any IRA money for a down payment on my house back in 1998, I will now be able to use this, if I want to, starting in January, 2009. My next big question is would I qualify for all the various "first-time homebuyer" programs available in Santa Fe?

Please contact a tax advisor for more information about this if you are going to use this strategy.