Re: Client withdrew 26,000 from a traditional IRA for first time home buyer purchased , distribution code says 1 on the 1099-R, in order to avoid the penalty it should be J. Is it that to avoid the penalty the distribution needed to be from a Roth IRA ?

No, Code 1 is probably correct for a traditional IRA if hes under 59½ years old.

The 26K is still taxable income, its just the penalty on 10K of it that you can get waived.  The penalty waiver is done on Form 5329.

Thank you Lisa! I have been trying to enter the exception number "9" on form 5329 but is not letting me  ..... am I missing something that I need to do on the 1099-R so that the number "9" flows to form 5329?  

You don't "do" anything "on" the 1099-R. It is code 1. Not J or 9, there.

I found these resources for you:

https://proconnect.intuit.com/community/help-articles/help/proseries-form-1099-r-faq-s/00/4853

https://proconnect.intuit.com/community/proseries-discussions/discussion/1040-form-5329-entering-exc...

https://proconnect.intuit.com/community/proseries-discussions/discussion/1099-r/00/62065