"nonbuyer" writes:
Hi, I'm evaluating the use of my one-time $10,000 withdrawal from my
IRA for qualifed acquisition costs on a new construction property.
I see that the funds need to be used within 120 days from distribution.
I'll be using the money for my down payment and closing costs.
My question is will I face a penalty if I buy a new construction
building and it doesn't close within the 120 day period OR is the
earnest money deposit count as using the money? I'm afraid that it
would only count if the purchase is closed within 120 days. Anyone
that has bought a place that is still being built can testify about
delays! I'd hate to be slapped with a penalty when with good faith I'm
trying to follow the rules!
For an authoritative answer, ask your accountantant, or perhaps a
licensed financial planner. Perhaps there are some lurking here.
Do you currently own any property in which you have equity? A home
equity line of credit secured against it would have several advantages
over the IRA loan thing. However, I'll assume you don't currently
have a property because to qualify for the $10k withdrawal, you have
to be a non-home-owner for at least 2 years I think.
Not a bad overview article here. Based on my
don't-trust-me-I'm-an-engineer read of it, it sounds like you have 120
days to put it towards a qualifying expense, and it sounds like the
construction down payment would be considered a qualifying expense at
hte time the payment is put down, and that the home wouldn't have to
actually close withing 120 days--you just need to be rid of the money
into a qualifying expense.
http://www.fool.com/school/taxes/1999/taxes990521.htm
And publication 590 from the IRS which says simply:
"It must be used to pay qualified acquisition costs (defined
later) before the close of the 120th day after the day you
received it."
So to a layman's reading, you withdrawal the money, you write a
$10,000 check to the builder for that downpayment within 120days it
sounds like you should be fine. There's no language in that
publication that stipulates that the construction has to be complete
and closed and occupied within 120 days of disbursement.
But again, IAN an accountant, so don't take my word for it. :-)
--
Todd H.
http://www.toddh.net/