Can I apply 2021 IRA home purchase exclusions to 2020 disaster distribution?

[tgdennis]

I have a cx that purchased a home in 2021 and wants to apply the $10,000 exclusion to the allocation in the current year of IRA distribution taken in 2020 tax return but spread over the 3 years.

[IRonMaN]

They got the money last year because of financial hardships caused by COVID and now they are saying they stuck the money in their sock drawer to buy a house?  I don't think that is how it works.

[tgdennis]

Understand some of that.  They used some of the money to put the down payment on a house in 2020 and then when the house was complete in 2021, want to get the exclusion. 

[IRonMaN · Accepted solution]

To get the three year spread, they had to have had a hardship because of COVID.  If that wasn't the case they fraudulently withdrew the money last year.  They can't have their cake and eat it too.

[qbteachmt]

Are you the same person that asked this same thing, here:

https://proconnect.intuit.com/community/proconnect-tax-discussions/discussion/client-spread-2020-dis...

My answer there:

The 3-year carryover from a 2020 covid-related distribution will be reported on Form 8915-F, which hasn't appeared in an update, yet.

The penalty waiver for first time home buyer for early withdrawal is Form 5329.

https://www.investopedia.com/articles/personal-finance/110415/can-you-use-your-ira-buy-house.asp

You can use your covid money for anything you want, but that doesn't change the distribution rule it fell under. Spending it on a home has nothing to do with tax reporting for the three-year rule. And, the disaster provision for a home in 2021 has nothing to do with disaster provisions in 2020.

For this: "They used some of the money to put the down payment on a house in 2020 and then when the house was complete in 2021, want to get the exclusion."

Then amend 2020 and refile it, showing the $10k house separate from the Balance as covid distribution. Now that balance is split over 3 years.

Read that article; it will help you determine if they finally qualify under this new concept.

[rbynaker]

I'm having trouble understanding how you can use the home-buyer exclusion to avoid a 10% penalty that was already avoided when it was a COVID distribution.

[qbteachmt]

"how you can use the home-buyer exclusion to avoid a 10% penalty that was already avoided when it was a COVID distribution."

You can't. That's the point. The same money can't do two things. And 2020 money cannot change purpose in 2021 tax reporting. Home buyer exclusion isn't a deferrable reporting option, either.

You know what they say: Pick a lane.

[rbynaker]

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@qbteachmt wrote:

You know what they say: Pick a lane.

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Yep.  I said that last night on the way home from dinner (well, more shouted it and there was a good bit of horn blowing as well).