First-Time Homebuyer closing costs-401K withdrawal

First-Time Homebuyer Expenses. The 10-percent additional tax does not apply if the individual uses the IRA distribution for certain expenses of a first-time homebuyer. Only $10,000 during the individual's lifetime may be withdrawn without a penalty for this purpose. Qualified expenses include acquisition costs, settlement charges and closing costs. The principal residence may be for the individual or the individual's spouse, child or grandchild, or an ancestor of the individual or the individual's spouse. In order to be considered a "first-time homebuyer," the person buying the residence (and spouse, if married) must not have had an ownership interest in a principal residence during the two-year period ending on the date that the new home is acquired ( Code Sec. 72(t)(2)(F)). 165

Bill takes a hardship distribution from his 401(k) plan on April 1, 2011. In order to satisfy one of the safe harbor requirements, Bill will not be able to make any elective deferrals or after-tax contributions to the plan until October 1, 2011 (i.e., six-month suspension of contributions).

Primary Residence-Capital Gain Exclusion

Generally, the home one lives in most of the time is one’s principal residence; it can be a house, houseboat, mobile home, cooperative apartment, or condominium.
In order to exclude gain on the sale of a home, a taxpayer generally must have owned and lived in the property as his or her main home for at least two years during the
five-year period ending on the date of sale. The maximum gain that can be excluded is $250,000 for individuals and $500,000 for married couples filing jointly.

Mortgage Debt Forgiveness

If you still have mortgage liability after foreclosure, any amount forgiven by the lender is generally ordinary income. However, for debt discharged on or after January 1, 2007, and before January 1, 2013, the debt forgiveness is treated as tax free if the property is your primary residence. The limit on qualifying debt is $2 million ($1 million for a married person filing separately).

Interest and Property Taxes

Home mortgage interest on up to $1 million ($500,000 if married filing separately) of home acquisition loans secured by your principal residence and/or second home is fully deductible. You also may deduct mortgage interest on a home equity loan or line of credit up to $100,000 ($50,000 if married filing separately). Therefore, you can deduct interest on total home debt up to $1.1 million ($550,000 if married filing separately).

First-Time Homebuyer Credit

The First-Time Homebuyer Credit increased to $8,000 in 2009 and is generally available for purchases made between January 1, 2009, and May 1, 2010, provided the home is occupied as the buyer’s principal residence within 24 months of the purchase. (Note: A first-time homebuyer is defined as someone who has not owned a principal residence in the three years before the purchase.) For purchases made after November 6, 2009, no credit is allowed if the purchase price exceeds $800,000. The credit only needs to be repaid if the home is sold within 36 months of the purchase date. For purchases made on or before November 6, 2009, the credit phases out for taxpayers with modified AGIs in excess of $75,000 ($150,000 for joint returns). The credit is refundable and recaptured if the home is sold within 36 months of the purchase date. For purchases made after November 6, 2009, the phase out starts at modified AGI of $225,000 for married taxpayers and $125,000 for all other taxpayers. The credit is completely phased out at modified AGI of $245,000 for married taxpayers and $145,000 for all other taxpayers.

Santa Clara County, Property Taxes

In Santa Clara County: If you're 55 or older, you can sell your appreciated primary residence to buy a new primary residence and pay the same property taxes if the value of the new home is equal or less than the old home. It can only be done once...

i.e. You bought a home for $500,000 for a primary residence in Santa Clara County. You sold it for $750,000. You bought a new primary residence for $750,000. You might be able to pay the old property taxes.